2011: Uncomfortable reforms ahead
Professional regulation and reform has been one of the hot topics in 2011, reports Robert Lovell.
During the past year, the accountancy profession has faced a pincer attack. At the top end, Big Four auditors faced criticisms and calls for structural changes to break their monopoly from both the UK House of Lords and European internal markets commissioner Michel Barnier.
Their lordships warned that the Big Four “oligarchy” that had grown up around listed company audits created concerns about competition, choice, quality and conflict of interest. Their report set in train a process that eventually mutated into a Competition Commission probe into audit market concentration.
Europe's audit market reform proposals, meanwhile, finally emerged after a series of leaks and delays. Key measures included:
- Firms will not be allowed to offer non-auditing services if already providing auditing services
- Listed companies must switch or rotate to another auditor after six years
- Joint audits are not obligatory, but are 'encouraged'
- Mandates can stretch to nine years if the audit is done jointly.
Changes ahead for smaller firms
At the other end of the scale, proposals to simplify financial reporting for micro businesses could well spell doom for high street and regional accountants. The March proposals outlined simplified profit and loss account and balance sheet reporting for the smallest businesses in Europe. The UK government enthusiastically embraced the European proposals as part of its deregulation drive for small business.
Vince Cable joined in when he confirmed that he also wanted to take advantage of increased audit thresholds that would take more small companies out of the audit regime.
As AccountingWEB contributor Steve Collings argued, these reforms were not popular with the majority of accountants whose own businesses would be adversely affected.
But the profession has been here before. The European audit threshold criteria have been rising steadily in recent years and many small business clients have already been lifted out of the audit requirement. Many firms have already pulled out of the audit market and focused instead on providing extra and added-value services for clients.
Tax policy making
While AccountingWEB has given the coalition government some stick about the reporting and auditing reforms for small business, we have to acknowledge that it has brought a new clarity to tax policy making. Under the principles laid down by George Osborne when he became chancellor in 2010, the objectives for measures are clearly stated and put out for consultation, leading to draft clauses published well in advance of the Budget and Finance Bill in which they will ultimately be introduced.
The new approach is welcome for eliminating many of the ugly surprises we have seen in the past (IR35 springs to mind), but on the practical side, the sheer volume of information published for comment threatens to swamp tax practitioners, lecturers and commentators. For this reason, AccountingWEB has started work on a Consultation Tracker to keep members on top of the measures and draft laws that are likely to appear in the coming months.
The table is still a work in progress, as new initiatives continue to appear at the drop of a ministerial hat. As we noted in our review of small business initiatives in 2011, the ConDems have put a lot of major regulatory changes on the table during the year, but some such as IR35 and the merger of income tax and NICs appear to be bogging down.
We will be watching carefully to see if the government maintains its momentum through 2012, but even if it does so, we will be looking forward to a year of debate, uncertainty and transition. Thanks to its more methodical approach to tax policy making, the most significant changes will not come on stream until 2013/14.