Advisers concerned about effect of audit threshold rise

A QUARTER of accountants are unsure how audit threshold changes will affect their business, according to a new survey.

With audit thresholds set to rise next year and removing another tranche of business from the compliance regime, 28% of advisers are uncertain about how this will affect them and their clients, according to CaseWare’s interviews with 50 of the top 100 practices.

More than half (53%) expect to see their revenues fall, while 37% think they will be unaffected as far as fee income is concerned.

Despite the concerns, accountants are working through the issue. Some 48% believe they are well prepared.

One in ten of mid-tier firms expect half of their clients to be affected by the change, while 40% of them see a quarter likely to be affected.

A quarter of respondents expect half their clients to want to ditch the annual audit, when possible.

Simon Warren, Managing Director at CaseWare, said that while many lenders and regulators will still require an ‘audit’ to be undertaken of clients, firms will have to consider their processes, and approach to the work. More thought, and action, will be required to replace revenues if clients ditch audit altogether.

“Many accountants in the mid-tier sector expect that significant numbers of clients will be affected and they believe that many of them will stop having audits,” said Warren.

“If those firms decide against audits, then accountants are going to need to find ways of clawing back their lost revenue from other sources and start offering alternative services to their clients.”

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  • Ian Sunderland

    Outside the top few firms, this rise in audit exemption threshold risks taking us back to the late 1980’s. Back then, many firms did not understand what an audit was. They simply prepared the accounts but attached an audit report instead of an accountant’s report.

    Verification rarely came into it beyond obtaining a bank letter. Attending a stocktake was rare as was verifying debtors. Related party balances were taken at face value.

    Audit regulation did much to raise standards and probably contributed a little to the recession we had in the early 1990’s as the truth came to light.

    The further increase in audit exemption risks taking us back to those same lax standards. It is quite possible to deliver true & fair accounts without full compliance with IASs. Look what the Operational Standard achieved. Rather than ditch audit completely for smaller entities we need a less onerous variant of present practice designed for the top 4, not the wider public interest as correctly defined.

    • Zeberdee

      I have to concur with Ian Sunderland’s comment above. At a time when the reintroduction of prudence is creeping up the IASB’s agenda, audits will be needed to ensure the reintroduction of prudence is properly implemented.

      We must not forget the extended period of growth we had after prudence was effectively written out of UK GAAP in 1998, as unwarranted provisions were written back making increased funds available for dividends, share buy backs and bonuses. Although it remains a requirement of the Companies Act, “prudence” has been redefined in UK GAAP to be worthless.

      If prudence is given its proper definition when reintroduced by the IASB (ie a biased concept to ensure financial stability in the public interest by requiring assets to be recognised only when reasonably certain but liabilities to be recognised if probable), we must introduce the change gradually rather than risk a crash by reversing the boom created after prudence was withdrawn.