Audit Required

Audit Required

Didn't find your answer?

I have been approached by a new client through recommendation. It is a small family run business who are exempt from audit but their bankers require them to do so. I am not a registered auditor but they have asked if I could prepare the statutory accounts and assist them with sourcing an auditor separately. This is new ground for me and I'm not sure it's work I want to be involved in as I suspect hassle, possibly wrongly. Would appreciated the thoughts and experiences of others who have been in this situation. Thanks.

Replies (22)

Please login or register to join the discussion.

Euan's picture
By Euan MacLennan
16th Apr 2014 21:53

Not fair to the prospective client

An auditor will need to do so many checks on the accounts you prepare that he might as well prepare them himself, thus saving the client duplicated fees.

Thanks (3)
avatar
By The Innkeeper
16th Apr 2014 22:22

@euan
As usual spot on

Thanks (0)
avatar
By User deleted
17th Apr 2014 00:17

Can't say ...

... I agree with the above, a modern audit and preparing statutory accounts have little common ground.

I am SW London, if near feel free to pm to discuss.

Problem is, banks have little idea what an audit is either, they just stick it in their covenants even though it is not really what they need!

Thanks (1)
By johngroganjga
17th Apr 2014 08:21

Agree with the above but it's for client to decide, and not necessarily wise for the accountant to pass up the opportunity.  As the company is in law audit exempt it may see its relationship with its accountant as long term, but its relationship with its auditors as transient.

To be fair to the client get the auditors to provide two quotes - one for a pure audit and one with the accounts preparation and tax work etc. added in.

If the accountant can't manage in the gap between the two quotes then the client can decide.

 

Thanks (3)
avatar
By MJ Green Accountancy
17th Apr 2014 09:36

Speak to the bank and see whether the requirement for an audit can be waived. Suggest to your client that they should tell their bank that they will change to another bank if the requirement isn't lifted.

 

If an audit is still required and you're in the West Midlands though, I'd be happy to assist.

Thanks (1)
avatar
By Yoshik
22nd Apr 2014 12:54

Bank

If the accounts have been submitted to HMRC and have been accepted then why would the bank feel an audit is necessary?

These is a sledge hammer to crack a nut and I would ask my clients to fight the bank.

 

Thanks (0)
Replying to DotasScandalDotOrg:
By johngroganjga
22nd Apr 2014 12:58

HMRC?

Yoshik wrote:

If the accounts have been submitted to HMRC and have been accepted then why would the bank feel an audit is necessary?

These is a sledge hammer to crack a nut and I would ask my clients to fight the bank.

 

Don't understand your point.  HMRC don't audit accounts do they?  If they do, their findings are, to say the least, highly confidential and not available to banks to rely on.

Thanks (0)
avatar
By Yoshik
22nd Apr 2014 13:07

Johngroganjga

I am insinuating that a self employed person can produce a certificate from HMRC to prove their income for bank mortgage purposes and this is standard procedure.

If banks feel that is sufficient for a mortgage then are they not unfairly setting a series of standards that apply to Ltd Co's. Is it not true that the type of company being referred to here is undoubtedly an SME with owner shareholders?

What we have here is then banks yet again creating obstacles to lending.

 

 

 

Thanks (0)
Replying to carnmores:
avatar
By User deleted
22nd Apr 2014 13:38

Yeah but ...

Yoshik wrote:

Johngroganjga

I am insinuating that a self employed person can produce a certificate from HMRC to prove their income for bank mortgage purposes and this is standard procedure.

If banks feel that is sufficient for a mortgage then are they not unfairly setting a series of standards that apply to Ltd Co's. Is it not true that the type of company being referred to here is undoubtedly an SME with owner shareholders?

What we have here is then banks yet again creating obstacles to lending.

... the point is an individual doesn't have limited liability so lending criteria will always be stronger for a company.

The point is, the issue should have been resolved at the time they signed the covenant and it should have been amended to say if the company is audit exempt then accounte prepared by an appropriately qualified accountant will be sufficient. However, they may resist as an audit means that a professional auditor believes there is sufficent evidence to suggest the company will still be lawfully trading 12 months from the date they sign the audit report.

Thanks (0)
7om
By Tom 7000
22nd Apr 2014 13:17

Easy

Charge them £2-3k? for doing the accounts and we will charge £5k for auditing them

Problem solved. I see it a lot as a registered auditor ie  dealing with other firms clients who are not audit registered.

 

Thanks (0)
avatar
By richardterhorst
22nd Apr 2014 13:18

Explain to bank and then no audit is needed.

My experience is that when phoning the bank they do not understand what an audit is. Its a standard request based on old criterea when all Ltd accounts were audited. When you explain they say "Oh but we want the statutory accounts drafted by a qualified accountant"

Problem solved. They change the wording to qualified accountant with an accountants report and away we go.

We have a saying in the Netherlands "They hear the bell ring but do not know where the striker hangs". That's banks!

Thanks (0)
avatar
By Director
22nd Apr 2014 13:31

Independence

Isn't there an independence issue where the accountants are the same as the auditors?

Thanks (0)
Replying to Triggle:
avatar
By chatman
22nd Apr 2014 15:45

Audit independence issue

Director wrote:
Isn't there an independence issue where the accountants are the same as the auditors?

Yes, but neither the auditor nor the company directors care. In fact, auditors are not independent even when they don't prepare the accounts, as they stand to lose a client if they don't produce the required opinion.

Thanks (0)
Replying to WhichTyler:
By johngroganjga
22nd Apr 2014 16:02

Cynical

chatman wrote:

In fact, auditors are not independent even when they don't prepare the accounts, as they stand to lose a client if they don't produce the required opinion.

You are entitled to be cynical if you wish.  But your comment seems to be out of touch with how auditors are now regulated.

Thanks (0)
Replying to Mrbailey:
avatar
By chatman
22nd Apr 2014 16:07

Audit Sham

johngroganjga wrote:
You are entitled to be cynical if you wish.

How kind of you. 

Thanks (0)
Replying to Mrbailey:
avatar
By chatman
22nd Apr 2014 16:08

Explanation?

johngroganjga wrote:
But your comment seems to be out of touch with how auditors are now regulated.

Do you have any sort of argument to support that claim or are we just going to leave it there?

Thanks (0)
Replying to LDV:
By johngroganjga
22nd Apr 2014 17:20

Regulation

chatman wrote:

johngroganjga wrote:
But your comment seems to be out of touch with how auditors are now regulated.

Do you have any sort of argument to support that claim or are we just going to leave it there?

OGA has already answered this very clearly.  It's because all auditors have their files reviewed by external regulators who take a delight in pulling them apart and removing the registration of those who fall short.  In particular if they found a case where an auditor had turned a blind eye to avoid alienating a client that auditor's days as an auditor would be numbered. 

Thanks (0)
Replying to Mrbailey:
By jon_griffey
22nd Apr 2014 16:58

Another POV

johngroganjga]</p> <p>[quote=chatman wrote:

In fact, auditors are not independent even when they don't prepare the accounts, as they stand to lose a client if they don't produce the required opinion.

You are entitled to be cynical if you wish.  But your comment seems to be out of touch with how auditors are now regulated.

In all fairness, I would say that an auditor can easily be LESS independent where another firm have prepared the accounts.  Before the turnover thresholds went over £1M I regularly performed audits for other accountants' clients.

Although I am of course happy that I acted with proper independence, there was definately a pressure there: -

- if deficiencies were identified in the accounts, how to deal with these without making the accountant look a fool.

- if there was something more fundamentally wrong that you need to take up with the client, you don't want to upset someone else's client.

- if I stood my ground, would I risk losing 10 other audits that I do for this other accountant.  In reality it was essentially the accountant that chose us to be auditors and the client went along with it.

I am surprised that the standard setters have overlooked this perspective.

I am glad that I don't do any audits for other accountants anymore.  I never got the feeling that they were 'my' client and that I was more of an annoyance.  Indeed as soon as the thresholds increased they took the exemptions and that was the end of my involvement and so I was not adding any goodwill to my practice.  A lot of dull, over-regulated work for little reward.

 

Thanks (0)
avatar
By User deleted
22nd Apr 2014 16:49

Because ...

... at least if you are ACCA, they come round and look at your files, in great detail, and if your evidence does not stack up or is insufficient to substantiate that opinion, you will not be a registered auditor anymore.

They pay particular attention to going concern, disclosure requirements and consideration of key risks.

Thanks (0)
avatar
By User deleted
22nd Apr 2014 17:21

ACCA ....

... also look at independance, quite thoroughly, they don't tolerate rubber -stamping and in the circumstances described above by Jon they will want evidence from the firm that they are independant. Part of the planning process is to assess if anyone can bring to bear undue influence on the auditor and if so to decline/resign the appointment. This is our audit planning worksheet, ACCA will review this carefully, they also interogate the audit licence holder about this as part of the initial meeting at the start of the visit.

 

Associated firms – influences outside the practice                    

Could any pressure be exerted on the firm by associated practices or from external sources such as bankers, solicitors or other parties?                                          

Where ‘yes’ give brief details:

 

 

Is the audit undertaken on behalf of another firm of accountants?       

Where ‘yes’ give brief details:

 

           

Where any service organisations have been used we must also ensure that the requirements of ISA (UK and Ireland) 402 have been followed, the compiling firm will be deemed a service company. So, we have to assess the skill and competence of the accountants as part of the audit process!

 

Thanks (0)
Replying to Tax Dragon:
By jon_griffey
23rd Apr 2014 10:38

Ethical Standards

Old Greying Accountant wrote:

... also look at independance, quite thoroughly, they don't tolerate rubber -stamping and in the circumstances described above by Jon they will want evidence from the firm that they are independant.

 

And quite right too!  I suppose my wider point is that the theme of the Ethical Standards is that having separate firms as accountants and auditors is a good thing, but I feel that this leads to greater independance issues and so is counter productive.

 

Thanks (0)
avatar
By Briar
24th Apr 2014 18:47

Give the bank and example of an Accountants (compilation) Report

I once sent to the bank an example of what my compilation report would look like and what the audit report would look like. They ended up dropping the audit requirement in the covenant (and I de-registered as an auditor - hurrah!!)

Thanks (0)