Audit threshold rise costs firms £360m

Accounting practices across the UK have lost hundreds of millions of pounds’
worth of fees following last year’s increase in the audit threshold.

New figures from credit information agency Graydon showed that, for the 2004
financial year, the number of audited accounts filed at Companies House dropped
89,000 from 2003.

Since April, companies with an annual turnover of under £5.6m are no longer
required to have their accounts audited. At the time, the government predicted
that the change would affect 69,000 companies but the figures show that this
estimate was out by nearly a third.

Graydon managing director Martin Williams predicted that, with the average
small business audit costing around £4,000, up to £360m of work may have been
lost to the profession.

Williams also warned that small companies opting out of audits risk being
denied finance from banks and other credit institutions in the future.

‘Banks and other financial lenders are going to be more cautious with less
information,’ he said. ‘I would have thought it was prudent for a lot of small
businesses to do an audit anyway to know where they are.’

Stewart Dickey, director of SME policy at the British Bankers Association,
said banks would continue to demand audited accounts from companies submitting
major new proposals or borrowing significant extra cash, but for day-to-day
activities ‘they have other information at their fingertips that is more
relevant’.

The Professional Oversight Board for Accountancy is currently examining
whether an alternative assurance system would meet the requirements of credit
companies, the results of which are expected before next year.

The impact of the audit threshold rise was played down by the Society of
Professional Accountants chairman Peter Mitchell, who argued that audit had
largely been a loss leader for small firms.

He predicted that a ‘nucleus of mini-audit specialists’ would be established
to ‘help their colleagues deal with residual audit work’.