PracticeAccounting FirmsAdviser: Ambitionless or visionary?

Adviser: Ambitionless or visionary?

Response to the Department of Trade and Industry consultation document on adopting the European audit threshold (EAT) of £5.6m, has seen the two principal accounting institutes, ICAEW and ACCA, both preferring to stick at the present level of £1m.

It is interesting to compare how the institute’s decisions were presented to members in 2003 with the furore that greeted the proposal to increase the threshold from £350,000 back in 1999. At that time there was significant public debate with heavy involvement of smaller practitioners, where the ICAEW provided a possible alternative threshold of £2.8m. This time the deal was largely done behind closed doors.

So what has caused them to sit on their hands? Could it be that the enthusiasm shown by smaller practitioners to introduce the EAT is unwelcome and cuts across potentially vested interests?

ICAEW’s submission lists all manner of further research requirements or perceived problems that introducing the EAT would create, but since many of these issues were around in 1999, why have they not been researched since then so that positive guidance could be provided to the DTI? In summary: was the introduction of the £1m threshold successful? Would the introduction of the EAT be beneficial to practitioners and their clients?

The institutes’ ‘do nothing now’ attitude would postpone eventual convergence with our European colleagues, and engage us in a third round of time-consuming discussions at some indeterminate future date, whether or not the conditions are then right to adopt the EAT. Business is not run on such indecision.

SPA is concerned that the institutes’ proposals may be seen as negative, defensive and likely to enrage, rather than appease thousands of smaller practitioners, with sweeping statements such as ‘companies that take advantage of audit exemption do not have the assurance of an independent check on the reliability of information in their accounts’.

This is patently not the case.

How many times do we smaller practitioners have to repeat that our services to corporate clients invariably include preparation of final accounts, and quality of accounts produced does not vary whether audited or not?

SPA developed its submission to the DTI (see www.spa.org.uk/Library/Reports) from ongoing research among 10,000 small ICAEW practices, and remains confident that introduction of the EAT would be beneficial, would present opportunity cost savings of £100m per annum in reduced professional fees besides saving valuable management time, and could be safely managed without weakening the profession.

Hopefully these vacillating and procrastinatory signals from our institutes will not distract the DTI from its perceived objective of providing most private companies with the option of deciding for themselves whether audit is beneficial or not.

  • Peter Mitchell is chairman of the Society of Professional Accountants.
  • Send in your questions for our adviser panel of experts on matters relating to small practices by emailing adviser@accountancyage.com Next week Mungo Dunnett, principal of Mungo Dunnett Associates, on technology issues affecting smaller practices.

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