AUDIT EXEMPTIONS could expand to include larger SMEs, a move government claims might save more than £600m a year in accountancy and administration costs.
Lifting the threshold for statutory audit could benefit as many as 100,000 companies, according to a consultation by the Department for Business, Innovation and Skills.
Current UK rules state SMEs must have both a maximum balance sheet total of £3.26m and less than £6.5m turnover.
European Union law classifies audit-exempt companies as those that meet at just one of these two criteria and employ 50 or fewer staff, and BIS wants to soften UK law in line with this less stringent requirement.
Corporate governance minister Ed Davey (pictured) said: “The proposals we’ve published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth.”
Acknowledging audit is “very valuable” for many companies, he also proposed exempting most subsidiary companies from audit, provided the parent company is able to guarantee their debts.
Henry Irving, head of audit and assurance at the ICAEW, underlined the importance of audit for oversight and governance, saying: “Many SMEs and subsidiaries will continue to choose to have an audit, even though they may qualify for exemption, because it provides confidence and peace of mind.”
Many critics have warned traders and creditors will not deal with companies that do not have an audit, and Irving echoed this concern, saying: “It can be important to have audited accounts when pitching for contracts or seeking finance.”
However, assistant director at the British Bankers’ Association Brian Capon told Accountancy Age banks generally lend on the basis on working accounts, which are sufficient to show companies’ financial status and viability as a borrower.
“Banks these days hold much more information on companies than they did several years ago, and this is generally enough to make a judgement,” he said.
Stakeholders have until 29 December to comment on the BIS consultation.
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