ICAEW split on SME audit

The English ICA’s audit faculty has criticised ‘blue-sky’ proposals for a new approach to small business financial reporting despite the institute giving its overall backing.

In its response to the Scots ICA’s ‘Breaking the Code’ report – issued last November in an attempt to influence the current company law review – the English audit faculty raised ‘serious reservations about the usefulness and the practicality’ of the proposals.

Echoing concerns raised last month by ACCA, the audit faculty took issue with the Scots’ most radical proposal for an ‘independent financial commentary’ to replace the traditional audit.

Company directors, with their greater understanding, should take primary responsibility for the commentary, the faculty argued.

The comments will be reviewed this week by a joint working party that includes several English institute representatives. Before it started its exploratory research, the Scots institute sought the English ICA’s support for the project, so that they could present a united front to the company law panel.

The joint working party is chaired by Arthur Andersen technical partner Isobel Sharp. When drafting the code, the committee sought to avoid a situation where directors told their accountants to draft ‘boilerplate’ comments.

In considering the responses, the working party would have to find a way to break what was becoming a circular argument, she said.

She was also aware that such radical proposals were bound to provoke controversy. ‘The proposals have generated lots of interest,’ said Sharp. ‘We have had more responses than I was expecting,’ she added.