From today small companies with turnover up to £5.6m and a gross assets threshold of £2.8m can choose not to undertake an audit.
They will still have to prepare accounts that comply with the Companies Act and accounting standards.
The potential audit fee savings are likely to please many finance directors of SMEs – a poll carried out by Accountancy Age last year found that 52% of FDs thought that raising the audit threshold would prove beneficial to business.
Institutes such as the ICAEW and ACCA will be concerned by the rise in the threshold.
In October last year, David Illingworth, president of the ICAEW, said the case had not yet been made for increasing the threshold and warned it would send ‘mixed messages to business’, while ACCA has in the past called it a ‘serious misjudgement’.
Tony Upson, PKF’s national assurance and advisory director, warned of the dangers of deciding to drop the audit:
‘An audit provides a measure of comfort and reassurance for directors, shareholders, the Inland Revenue, lenders and creditors by providing an independent check on the company’s accounting function. Forgoing an audit may also adversely affect a company’s credit rating.
‘If you are a growing business likely to require external funding in the future, it is probably advisable to continue with an audit. Venture capitalists, for example, look for a history of good corporate governance and an audit is an indicator of this.’
PKF also warned that the rules governing exemption from audit were complex and not simply based on turnover and the revised gross assets threshold.
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