PracticeAuditAudit costs are set to rise dramatically, FRC warns

Audit costs are set to rise dramatically, FRC warns

FRC says newly revised standards from the US will cause a hike in audit costs for private companies

Payl Boyle, FRC

Paul Boyle: ‘audit costs will go up to some degree’

Private companies are about to suffer a hike in audit costs, at a time when
economic uncertainty and the credit crunch make them more vulnerable.

The bad news comes from the UK’s financial reporting watchdog, which warned
that newly revised audit standards emerging from the US will add complexity to
regulation and increase the price of audits for private companies.

Paul Boyle, chief executive of the
Financial Reporting Council
said: ‘What’s acceptable to BP may not be acceptable to private companies.’

He made the comments in relation to international auditing standards emerging
from the ‘clarity’ project of the US-based
International Auditing and
Assurance Standards Board
, which aims to revise standards and reduce
complexity.

Audits are obligatory for companies with a turnover above £5.6m.

But Boyle warned that the new ISAs have more detailed requirements than the
present standards. ‘As a result of that, the likelihood is that audit costs will
go up to some degree. At the top end of the market it may be bearable, but not
at the private end of the market.

‘The pressure to improve ISAs has come primarily from people interested in
the audit of listed companies, and listed companies typically have lots more
money,’ said Boyle.

In the UK, a single set of audit standards is applied to public and private
companies. ‘The question that will increasingly be debated going forward is
whether this is a sustainable solution,’ said Boyle.

But he added that standards differ depending on a company’s size and levels
of public interest.

‘Questions are going to arise as to whether we can have a single set of
auditing standards to apply to companies of all sizes and all levels of public
interest,’ said Boyle.

John Pierce, chief executive of the smaller quoted companies group,
Quoted
Companies Alliance
, said he anticipated added complexity from the ISA
review.

‘What you do find is reviews end up making life more difficult. When you get
used to one set of regulations, another lot come along, doing something
different rather than better,’ said Pierce.

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