Tens of thousands of companies exempted from mandatory audits under rules announced by Vince Cable
THE GOVERNMENT has announced changes to reporting and auditing requirements that will allow more small companies and subsidiaries to decide whether or not to have an audit.
The changes, announced by business secretary Vince Cable in response to the consultation on Audit Exemptions and Change of Accounting Framework, also make it easier for companies to move from IFRS to UK GAAP.
“Tackling these problems will help save UK companies millions every year and free them up to expand and grow their business, which ultimately benefits the entire British economy,” Cable said.
Current UK rules state SMEs must both have a maximum balance sheet total of £3.26m and less than £6.5m turnover to qualify for an exemption. The new regulations mean SMEs will be able to obtain an exemption if they meet two out of three criteria relating to balance sheet total, turnover and employing no more than 50 staff.
This change will allow 36,000 more companies to choose not to have an audit.
The government will also exempt most subsidiary companies from mandatory audit, as long as their parent company guarantees their liabilities. A further 83,000 subsidiary companies will benefit.
In addition, another 67,000 dormant subsidiaries will no longer need to prepare and file annual accounts, provided they receive a similar guarantee.
Following consultation by the FRC on changes to UK GAAP, the government has also decided to allow companies that prepare their accounts under IFRS to move to UK GAAP and take advantage of reduced disclosures.
Commenting on the BIS announcement, Henry Irving, head of ICAEW’s Audit and Assurance Faculty, said: “ICAEW supports a deregulatory approach to stimulate sustainable growth. However, it is crucial that smaller businesses remain focused on having strong financial controls and appropriate management oversight, as that is critical for business confidence, which – in turn – is vital for growth.
“Audit and other types of third-party assurance play a key role in instilling confidence. Being able to produce independent verification of the company’s financial statements can be important for securing finance, for example. Therefore, companies that may be exempt under the new regulation may still choose to have an audit done.”
The regulations are expected to come into force for accounting years ending on or after 1 October 2012.