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A few questions for registered auditors

A few questions for registered auditors

Hello auditors!

I know Vince was just talking about EU related stuff which is not new, but anyone any idea when / if FRSSE companies and medium sized companies are likely to be taken out of the audit regime?

In the consultative process, what are the influential voices saying?

What do you thnk will be the likely outcome of the consultation?

Thanks for your feedback!

Kind regards

SA

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09th Mar 2011 11:59

Follow the link

You can read the press release here

 

http://nds.coi.gov.uk/content/Detail.aspx

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09th Mar 2011 12:12

Thank you...

I've read the report of Vince Cable's speech.

I am trying to gauge how quickly, if at all, this is going to take effect. Six months, a year, or a Big Bang immediate implementation?

SA

 

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09th Mar 2011 12:26

Be a while

These proposals have been thrown around for some time now. I read much the same on a course this time last year.

I wonder if they will face opposition from the top ten etc with a vested interest in the status quo?

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09th Mar 2011 12:44

Hope you're right

I hope that it will be a while, and that Mr Cable was just highlighting a statement of intent, as opposed to a very rapid overhaul of the system.

Top 10 - yes, this is what I am wondering. Will they oppose it and use their influence to stop it?

Thanks Roland.... any other thoughts? Euan? Steve Collings? Anyone?

Kind regards

SA

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09th Mar 2011 13:57

A view

I can't see a problem with moving up slightly to the current EU limit, and that should happen fairly quickly I would have thought. Going up to £25m or so is a different kettle of fish and that is where you leave behind most owner managed businesses. At that level there are going to be equity/debt providers as well as other stakeholders who will insist on an audit whether Vince likes it or not.

Big 4/Top 10 audit firms probably won't be affected too much by such a move as they won't have a great deal below £10m, and where they do there's probably a reason other than statute - bank covenant, shareholder agreements with VCs etc - so those audits would stay. If Big 4 are unaffected its highly unlikely that the ICAEW will get involved in any lobbying. Even if they did, it might be a struggle to present a case without a heavy note of self interest.

For me, it's down to audit firms to demonstrate that audit is not just an annual imposition and cost but also a service that can improve and strengthen a business.

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09th Mar 2011 15:51

Do you actually believe this?

For me, it's down to audit firms to demonstrate that audit is not just an annual imposition and cost but also a service that can improve and strengthen a business.

Do you actually believe this? I may be a bit too jaded but I fail to see any advantage to an audit for a SME owner managed company.

 

 

 

 

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09th Mar 2011 16:49

Yes

Personally, not in the habit of typing something for the sake of it.

Maybe you should think about a different approach to audit work and the types of conversations you have with clients.

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09th Mar 2011 17:06

Each to their own

Personally, not in the habit of typing something for the sake of it.

Maybe you should think about a different approach to audit work and the types of conversations you have with clients.

I am not trying to wind you up but just honestly cannot see where an audit provides any benefit to the client at owner managed SME level that the general accounts preparation & procedures do not.

 

 

 

 

 

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09th Mar 2011 23:01

Rowland

Even though my decades of auditing are about to end, I'm 100% with James on this one. 

For my own sanity if not self esteem (and in accordance with best practice) I never carried out an audit just because regulation required it.  To carry out such intrusive and expensive work for a client without attempting to find ways of making it of some benefit to them would be putting me fairly in the "necessary evil" bracket and that isn't where I wanted to be.

Consequently, for me, the management letter following the audit was the most valuable bit of the exercise each year.

Having said that, my personal experience is that the complexity and weight of audit regulation has become too much for me to cope with as a sole practitioner.  Most of my audit clients were little changed in size and complexity over 5 years but what I had to do to satisfy their audit had significantly increased and so they are better off with a larger firm that is setup to carry out that work.

The benefit for me now is that I can still use the most valuable bits of audit practice to investigate and advise my business clients.

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10th Mar 2011 09:43

Paul

I feel much the same as you in that I am not actively seeking new audit engagements and will likely refuse any on the basis you outlined.

Where I differ is that I very much view the audit as a necessary (or unnecessary may be more accurate) evil. I focus my services for these clients on the areas where I can actually offer something - tax etc.

Realistically, what can I say in the management letter to an owner managed business that would truly be of benefit that is not covered by the other non-audit services provided?

 

 

 

 

 

 

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10th Mar 2011 10:52

Rowland

Hi - I take your point and I suppose our differing views may reflect the companies we audited.  Tax and "numbers"  advice can be easily given from the desktop, over the phone or even down the pub, but the audit requires you to attend & watch how the business is run and there are always methods, policies, staff management issues that you will see in action that can benefit from a 3rd party eye (wish I had one here from time to time) and, more often than not, this is more true of owner managed businesses where one or two people control & run the business in the way they have always controlled & run it.

There's a personal issue here for me as well in that I far prefer helping people run their businesses more effeciently (do more with less) than finding a tax angle or another accrual they missed.

 

 

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10th Mar 2011 11:29

Paul

I see where you are coming from but in my experience, owner managed companies are not really interested in my views of staff management, policies etc (without wanting to open the debate about if accountants are business advisors). They will run their business how they like - any control that gets in their way will be over-ridden to the point that systems testing is no help at all.

For the vast majority of SMEs, they will be happy with the cheapest ticking & bashing excercise that their auditors can provide to get in over with. The work required is extensive (and expensive) enough as it is.

I would love to think that I could give a truly useful service but I don't believe that I can while auditing.

 

 

 

 

 

 

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10th Mar 2011 13:05

Rowland

This is not having a go, honest, but as well as not being being within the spirit of what your regulatory body expects, it seems sad that anyone would have that view and approach to the work they do, ie to not at least try and get something positive out of it, an opportunity to get some job satisfaction?

The obvious question is why on earth do it?

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10th Mar 2011 16:58

Paul

A very good question that I ask myself often. I give serious thought to withdrawing from audit often but can never seem to get round to doing it. I  even have an idea that I don't actually make money out of it when considering licence & CPD costs. As I said, I certainly won't be taking on new ones.

I can live with this current position because I feel that my work in other areas for the company & it's owners makes up for the lack of purpose I see in the audits and I believe I give my clients a good, all round service.

I must admit that I could not give two hoots what ICAS make of my views - I will happily tell them the same. I will audit to the standards expected of an ICAS member with an audit licence and in line with the requirements  but if they tell me I must believe there is a point to  what I am doing I will resign.

 

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10th Mar 2011 17:25

Smypathy Rowland

Think I held on as long as I did because it is the only thing really that justifies the "qualification", (when I qualified I could mess about with investments and liquidations).  There was also the practical consideration that, 3 years ago, my four audits represented 25% of my fee income.  The final nail was scraping through the last regulatory visit two years ago and realising, as I say above, that I'd done my bit.

The feeling of relief at making the decision was tangible and this time next month, after having signed my last audit report, there will be the noise of popping corks in the office.

Good Luck

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11th Mar 2011 09:37

sorry, just seen this post!

I can understand why a lot of people welcome the proposed changes.  Auditing (certainly for the practitioner) over the years has become more and more costly due to new standards and quality control issues.  However, this is an issue which has always been "on the agenda" for a while and is an issue which I suspect may take some time to implement.

I think it was Mark Lee (apologies if I am mistaken) who has said on another thread that the government do seem somewhat out of touch with what is actually going on within the accounting and audit profession.  Many (if not practically all) small companies claim exemption from audit anyway, so it is merely the medium-sized companies who fall under the scope of audit.  I am really not sure what benefit will be gained from exempting small companies from filing abbreviated accounts because, let's face it, it's hardly rocket science and in many cases once the full accounts are finalised (certainly in well-known accounts production systems) all it takes is to run the abbreviated accounts.  So I think Mr Cable, in this respect, is out of touch with the real world.

My audit clients DO benefit from an audit.  This is because I know how to turn it into a beneficial exercise as opposed to a hindrance for the client and one which is profitable for the practice and, of course, financiers (and HMRC) always prefer audited rather than unaudited accounts.

I'm not a politician and don't get involved in politics at all (I like the quiet life!!!) but I agree with one of my esteemed colleagues in the auditing world when she says that this announcement by the BIS was somewhat premature.

All the best (have a good weekend as well).

Steve

 

 

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11th Mar 2011 10:43

Audited Accounts

In my experience, most of the banks have no idea of the difference between an auditor's report & an accountants report, HMRC do not care one way or the other and if investors are interested, they will want their own people to look at the books.

I suppose one way to settle it would be to ask the clients if they feel the audit process is beneficial to them. I certainly have never come across an owner managed SME (excluding charities and joint ventures) who opted to have one.  

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16th Mar 2011 10:56

Vince

I've given up believing most of what Vince says. He did ok on Strictly though.

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By Mallock
16th Mar 2011 11:39

Assurance Report

I still think there is value in audit but at the same time don't believe that it adds anything to the business which couldn't be added by some kind of halfway house or Assurance Report.

Personally I don't think the EU limits for audit will be moved much and the UK threshold will probably just be increased to match the EU maximum limits.

Current auditing standards and regulations largely grew out of the American standards but in America they only apply to listed and public interest companies. In the EU we have to apply the same standards which were designed for listed companies.

The standards were designed by the big firms for the big firms for use on big firm clients which is why so many small accountancy practices are giving up audit.

I would like to see audit requirements being removed from small and medium sized businesses and replaced by an assurance report which would retain the skills of the current small firm auditors to be applied in a positive manner rather than just being binned when they decide that the regulations have become too onerous.

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16th Mar 2011 12:14

Compilation report or Assurance Report

I presume you mean Assurance Report, rather than Compliation Report, a Compilation Report is just the standard report where you have helped the client prepare the accounts but without doing any form of check other than for reasonableness. The ICAEW have been trying to promote an assurance report for the last few years as a half way house between compilation and audit, but there has been little success in promoting it, largely down to a lack of understanding it terms of what it means.

Regarding the general audit debate, there is a degree of sense in adopting an approach where say an SME with no major borrowings, and directors are the owners can dispense with the audit almost irrespective of size, this seems to be the approach adopted for the FRSME (but above FRSSE limits). There will inevitably be occasions where small entities with borrowings or having other external requirements are going to need an audit.

I also agree with the point made by a number of posters that if you are going to carry out an audit, you should at least try and make it useful for the client. I have made a number of recommendations to clients that have helped reduce bad debts and adust stock costing models that have ultimately helped them to reduce costs or justify price increases.

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16th Mar 2011 12:19

But

I have made a number of recommendations to clients that have helped reduce bad debts and adust stock costing models that have ultimately helped them to reduce costs or justify price increases.

But would you not have made the same recommendations to the client based on the work you would have done if you were only preparing the accounts?

 

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16th Mar 2011 12:31

Compilation Report or Assurance report

Possibly in some cases the bad debt ones, but we certainly wouldn't have picked up stock costing issues if we hadn't have done an audit.

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By Mallock
16th Mar 2011 13:51

Amended

Yes, of course it should have been Assurance - now edited.

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19th Mar 2011 11:28

honest joe

-- ed brown

For honest joe who is a minority shareholder of a small audit exempt company the problems he faces to see what the company is doing is almost unsummountable unless he has the funds to employ a solicitor to delve and start throwing his weight about.

Not that my own intent is to cause problems but as the only non-director of a three shareholder company, I find to get a sound idea of the investments and trading of a small property investment company almost impossible with reticent and very scant information forthcoming through questions at agm etc.

I firmly believe there should be an avenue that allows a shareholder, in my case a 1/3rd holding of the ordinary shares - the only shares issued - ease of obtaining fully audited accounts without recourse to heavy and expensive legal process.

There will be thousands in the same situation as myself who have either inherited shares or invested and later found themselves without directorships and or denied everything except, simply, a quick balance sheet and p and l account.

the opportunities of fraud and mis-handling of assets, etc. are obvious. transparency leads to confidence and better communication and the better chance of fulfillment of opportunity.  

the above may seem naive but this is from my own experience in a small family company.

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19th Mar 2011 12:39

There is

You should look at s476 Companies Act 2006 concerning the right to require an audit (by a person or persons holding at least 10% of the shares in the company).  Just send a letter to the company at its registered office referring to s476 within the time limits laid down (i.e. at least one month before the end of the financial year).

You need to send a fresh letter every year.

David

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20th Mar 2011 15:36

Thanks for the suggestion

Done that in the past but little gained or found from the end result.

the old fully audited accounts of yester year with rents, commisions payed, individual maintenance expenditure on properties, changes in rental income, and all not brought shewn even in the resulting a/c's.

even amajor long term landed investment - parts sold off off, etc. not forthcoming. found without going into lengthy investigation through local authority offices, land registry and all only to hear of an expensive failed joint planning application and appeal and an application for trimming back a few trees.

Objective and not an undue troublemaker, I found the audit was little more than a check of the figures shewn in the brief unaudited accounts.

Further I can do as I soundly have doubt re the objectivity of the runningof the company in several ways and certain missed opportunities I would very much like to have a lead.

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03rd Dec 2012 21:25

Late in the day

Sorry for late contribution but at the end of the day, an informed client knows the value of an audit. They'll have one because they have to or want to. Those who want to know the reassuring value of the increased weight of opinion. Those who have to should be educated to know why it's useful. An audit opinion gives so much more intangible credibility to the accounts process that the clients need to be sold that value by giving them the comfort that our one page of support will supplicate a myriad of users.

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