Audit industry faces major overhaul

THE BUSINESS SECRETARY has pledged to remove the need for accounts filing and audits for tens of thousands of small and medium-sized businesses.

Vince Cable said under the proposals, which the government is consulting on, small companies would no longer need an audit, bringing the UK in line with EU rules. He said this will affect 42,000 businesses.

The government will push for exemptions for even smaller businesses to submit specific accounts for Companies House in addition to those for tax purposes, which the business department predicts could save £400m.

Around 32,000 medium-sized businesses could be freed from requiring an independent audit.

Parent companies might not have to publish accounts for their dormant subsidiaries, he added.

“It’s important that we free small firms up so they can grow and drive the economy. The changes I have announced today mean that small firms will be able to concentrate on growing and taking on more people instead of paperwork,” said Cable.

Initial reaction from the major institutes was mixed.

Paul Provan, ICAS’s assistant director of business policy, told Accountancy Age that the removal of audit from medium-sized businesses was “not in the public interest”. He said that there was no way of seeing the impact on audit firms without seeing the detail of the consultation.

John Davies, head of technical at the ACCA, told AA that “clearly a great many firms would be doing fewer audits” but added that the changes are still at the consultation stage.

He added that this was not a major new announcement but a restatement of the department’s principles, such as the support for the move within the EU to exempt micro companies from all accounting rules and the idea of extending audit exemption to companies of up to £25m.

However, he added it was “disappointing that there are several references to several auditing and accounting rules being synonymous with red tape”. This oversimplified the situation, he said.

Clive Lewis, head of SME issues at the ICAEW, told AA that the institute was “broadly supportive” of measures to ease the regulatory burdens on business.

He added that this should not have much of an effect on auditing firms as the audit threshold currently stands at £6.5m turnover. “You are talking about fairly substantial businesses. So raising the threshold further would involve larger businesses with complex transactions so many will continue to voluntary have it,” he said.

Some firms will decide to use other services provided by the institute’s members, such as assurance, he added.

Related reading