Peter Williams – Audit exemption hike is ‘crazy’

Accountancy Age reported on 13 May that the government was considering raising the audit exemption limits – news which had two peculiar elements. First, it seemed these rumours had originated from senior levels within the Department of Trade and Industry, and second, the revised turnover threshold under consideration – up from £350,000 to £4m – was astonishing.

The current audit exemption regime is working well. The £350,000 limit makes sound commercial sense. Most businesses with that level of turnover are in essence lifestyle businesses. In many respects the business will be indivisible from the principals involved. Certainly if they want to borrow, the bank is likely to seek personal guarantees. Likewise, other businesses, which may want to grant credit, can make a commercial judgement about companies operating that level of turnover.

The present audit exemption regime took years to introduce, partly because of a split within the accountancy profession – big firms wanted to see the micro-audit go, while small firms, with a direct commercial interest, wanted the status quo. But more importantly, the Inland Revenue blocked moves to let smaller limited companies off audits because an audit certificate gave the Revenue some assurance that a small business was not on the fiddle.

It is hard to see the Revenue accepting a turnover of £4m before the auditors have to go in.

Audits have come a long way since the ‘pile ’em high, sell ’em cheap’ days of the mid-1980s. The audit profession is well regulated and only the occasional rotten apple slips through the net of the Joint Monitoring Unit. Not only are auditing standards better, but auditors and their clients are rediscovering the fact that the audit can be more than just a tick and bash exercise and can actually add some value.

This government says it wants to promote small business and enterprise, as well as excellence and best practice. Companies trying to grow to the £4m mark may seem tiny when viewed from the ivory tower of the DTI, but in reality they are significant commercial concerns. Taking away one of the best potential sources of advice – the statutory audit – at a time when businesses desperately trying to grow seems crazy. Let’s hope that the £4m audit threshold story was a very early silly season story.

Peter Williams is a chartered accountant, freelance writer and director of KATO Publishing.

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