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Zero sum game?
OK, so it's cheaper for small business, but the small businesses that are performing the audit have just lost a chunk of income. For UK plc it's a nil nett.
And just in case you wonder, I have no vested interest either way since I work in the public sector (at least I do at the monent, the interview is next week...).
Well done Vince, I say
I hope that the Government see this through and do not get sidetracked by the vested interests. I posted my take on this news yesterday on my blog.
Audit began with the need for investors in joint-stock companies to have a way of checking the stewardship of their money by those managing the company. Where, as in the vast majority of cases, the shareholders and directors of a smaller company are the same people, this external monitoring of the stewardship function is clearly illogical.
What about charities
Will this change affect charities? Will the £500,000 limit go up?
Posted by David160 on Tue, 08/03/2011 - 18:57
Hopefully not!!
Whilst there may be some argument for this in commercial companies (the shareholders and the directors are the same therefore the shareholders interests do not need protecting) this does not apply to charities. Here public money is entrusted to the trustees.
The existing threshold is already too high. Independent Examination does not provide the same assurance as an audit.
Well intentioned trustees who have a passion for their cause do not always have the best financial controls and a sector based on trust is open to abuse. A recent report from the National Fraud Agency estimated fraud in the Third Sector to run at £1.3 BILLION pound a year. The charitable sector needs robust regulation and that must include appropriate external scrutiny
Proposals do not go far enough
My firm deals with a lot of medium and large sized private companies. The majority are owner managed business where the company or group is owned and run by 1 or 2 individuals, they do not have bank loans, etc. Their accounts need to be audited just because they have exceeded the audit threshold.
These are private businesses not operating in any public interest sector. The audit is of no value to the directors/shareholders. They have better management systems on which they rely and an audit carried out months after the year end is irrelevant. So why are they required to have an audit just because of their size? In my opinion all private owner managed business regardless of size that are not in a public interest sector (banks, charities, etc) should be exempt from audit unless a certain percentage (10% maybe?) of the shareholders request an audit.
Companies Act 2006 also brought in a requirement for medium sized groups to prepare consolidated accounts. Again, the private owner managed business see this as an extra unnecessary cost and do not derieve any benefit from this. This requirement should be removed as well if the government is looking at regulatory red tape.
What does it all mean?
"for even smaller businesses (less than 10 employees, €2m turnover/balance sheet - £1.7m equivalent) government will push for exemptions in European rules to remove the requirement to produce specific accounts for Companies House in addition to those for tax purposes - saving around £400m "
I am missing something obvious here?
I don't understand why there's talk of separate accounts for Companies House and for tax purposes. We only prepare one set of statutory accounts (from which we press a button for abbreviated accounts).
Surely they can't be talking about removing the abbreviated accounts option which is hardly a burden and protects small companies from having to disclose business sensitive information to all and sundry.
Unless they're going to allow companies to file abbreviated accounts with HMRC :-)
I have to disagree witth these proposals..
The point about shareholders/directors being the same people and therefore no need for external review of the stewardship of the company is cobblers, frankly.
When I started in audit (I no longer do it btw) all companies irresepctive of size needed to have an audit. The audit, due mostly to perception issues, was seen by clients as us checking up on them and making sure they weren't diddling the taxman (at least that's the impression I got). Of course this wasn't the case but it did prompt clients to keep decent records.
Since the de-regulation and shifting up of audit thresholds, I have seen a steady and quite steep decline in the quality of records kept by clients and them saying things like, "well it doesn't need to be audited anymore does it, so who cares if its right?" and then some rant about paying too much tax.
Audit was useful in making sure clients ran things properly even if their perception was off and I believe we should be reducing the turnover threshold to say £1m rather than pushing it up.
Good News
Andy - With regard to "micro companies" as defined by EU rules, this has been on the cards for some time now. All it means is that you will no longer have to file the accounts at companies house, ie they will no longer be made available to the public, (full or abb). You will however stillhave to prepare full statutory accounts for the shareholders and HMRC.
With regard to the value of an audit this is a mixed bag and I've dealt with several small companies that required me to audit as it created a better impression for the bank & other stakeholders.
I would also say that the larger companies (however that is defined) should still be audited as their wellbeing and activities effect far more people than just the owner/managers and this will come more to the fore when larger companies are required to report under CSR regs and auditors are required (hopefully) to consider that along with the other disclosures.
Anybody who feels it's not right to audit any of these companies should strongly consider a career move, I'm just about to finish my last ever audit (after nearly 40 years of it!) and the grass is definately greener.
HMRC inspection of records
This surely conflicts with the decision of HMRC to start inspecting small companies records. HMRC say small companies records are bad which as noted above may have something to do with the fact audits are no loner required.
Given the choice as a small business I'd rather be audited by the firm of my choice than HMRC.
Quality of small company records
My experience is that small company records have improved significantly over the past few years but clearly from comments above and from HMRC I am in a minority.
Surely with the information around, government guidance and the availability of smarter IT bookeeping there is no excuse for records to stay poor? Also it's in our interests to educate the clients to keep good records, isn't it?
Yes there are and always have been rogues but you can just say no and let HMRC deal with them.
Independent Examination
I.E. works for me. The only difference the accountancy firm took when we removed the need for an audit from the trust memorandum (small charity did not strictly need an "audit") was the statement "we confirm we have auditted..." blah..blah, which held them legally responsible, as well as the cheating trustee.
In fact, given that the Trustees/treasurer should be the ones held responsible, then I prefer I.E.
The I.E. saved the charity hundreds of pounds, which did not benefit the accountancy firm, really only benefitted the insurance company with the higher indemnity premiums!!!
So no use to anybody then?
"Andy - With regard to "micro companies" as defined by EU rules, this has been on the cards for some time now. All it means is that you will no longer have to file the accounts at companies house, ie they will no longer be made available to the public, (full or abb). You will however stillhave to prepare full statutory accounts for the shareholders and HMRC."
Doesn't really offer any advantages then as statutory accounts will still be needed for HMRC (i.e. negligible less work).
I'd also argue this is probably a bad move as it removes an encouragement (otherwise penalised) for company's be in control of their records and file accounts on a timely basis.
Finally, I'd point out that filed accounts at Companies House are useful for all businesses as they can be used to credit check existing and potential customers. Without this option a lot of small businesses might suffer significant bad debts because they had no idea that the customer they were dealing with was in a financially impoverished state.
So what are the implications for accountants in general
For you colleagues who have been in practice longer, is this good or bad for accountants. Has business increased for accountants without audit every time the threshold has been raised.
I know that when i was only limited to charity accounts raising the threshold to £500k was good for us.
Andy
On the face of it you are right the companies hose filing exemption is not the main news, the audit threshold is.
Mind you we've found companies house filing a bit of a pain as we still have to file on paper as ACCA require us to attach a report which doesn't happen if we submit electronically.
Not sure therefore how this will save much money, especially as Companies House (or rather the Treasury) are bound to lose a significant chunk of their £70M odd late filing penalties each year?
We've only had 9 month filing for a year, before that it was 10 months, and so with HMRC tax being due @ 9 months and full filing @ 12 months I don't see this as a charter for late providers of accounts. My view has always been that it's us that set the time limits for the work and if clients won't play ball they can move on.
Finally, on the question of credit rating info, have you ever spoken to a Credit Reference agency about the value of abbreviated accounts? Plus, in most cases, the figures published are between 9 & 21 months out of date.
School63
For me, every step in the exemption (right from the first one) has been positive, mainly because it was the main thing we did that the clients saw as being of no use to them, so we were a "necessary evil". We still are in some cases but far less so!
Even though each stage has come with predictions of significant losses in fees we, and many others, took the opportunity to offer the client more of the proactive stuff, so if the accounts were £1K and the audit £3K, we'd quote say £3K and using the bits of audit that would help them iimprove their systems etc. It also freed up our time to find more generally to do for clients and so, with quite a lead time between the announcement of the exemption change and implementation, I can't say we ever really suffered financially.
No wonder HMRC are doing Business Records Checks this year!
When the Government makes this sort of announcement, the natural response is for smaller businesses to relax their own systems and checks. Later this year, HMRC will roll out their Business Records Checks, targeting 50,000 SMEs each year. No doubt they will discover that businesses have failed to maintain proper records - and part of the reason is the Government's own relaxation of the audit threshold! Where is the joined-up thinking?
Little Difference...
Raising the audit threshold will have little to no effect on the standards of book keeping practiced by those companies- that is much more likely to be influenced by the owners and YOU as the accountant. It doesn't matter whether a client needs an audit or not, I encourage all my clients to keep the best records they can as this gives them the best idea of exactly where their business is at any particular time, and reduces the time they spend on paperwork and they can spend more time on what they are good at- running their businesses!
As for the 'business record checks' being proposed by HMRC, these are just back door enquiries without the need to open a formal enquiry before they stick their noses in, and anything else anyone says is just window dressing- instead of being sent records to back up entires in the accounts they want to query, they will now start at the other end of the process and question every entry in the hope of finding something wrong to justify their visits.
Bit similar to MDD , or as it should be known, MUD, all another nail in the coffin of trying to run a small business in the UK- small wonder so many talk of leaving the UK.
Less than 50 employees?
I thought that the requirements for audit were based on turnover and gross asset value only. The number of employees is relevant only in determining whether a company is small or medium. Or have I missed something?
Small companies accounts
Is this not just a case of the government and their advisors having a total lack of understanding - again- of a sector they are regulating or in this case, deregulating. If all this proposal is supposed to do- and I am not quite sure what it is supposed to be doing- is to abolish the need for some companies to file accounts at Companies House, how on earth do they think this will save anything more than a few quid? Surely they cant be that detached from reality that they fail to understand that the time consuming bit, and hence expensive bit, is preparing the detailed accounts in the first place. And who want these more than anyone else? They do (ie. through HMRC so as to raise tax). Or are they proposing a nice simple income and expenditure account to be sent to HMRC? Something along the lines of the current requirements for those unincorporated businesses with a turnover of less than £30,000? No balance sheet and a two line summary of total income and total expenses.
They haven't got a clue.
Or am I missing something?
Tick and flick
Interesting, I have just started work with a firm because they are seriously concerned about the impact of simplifiaction. The ower has 20 years left and wants to get their value proposition and positioing sorted now so they are not a commodity firm.
I now see four key drivers of pressure:
Better technology and better use of itOutsourcing with major player like IRIS50% increase in competition according to CCHSimplication
I'd suggest developing your firm's value proposition (product development), positioning and brand building are absolutely essential if you want to avoid increased price pressure over the coming years. You may not need to cut prices with existing clients (yet) but I hear it is a different story with new clients.
I spoke to a firm yesterday who just spent £3,000 on advertising which drove traffic to their Website. They saw the visitor numbers on Google Analyitics but they didn't get a single call!
First, I checked that the telephone number on the Website was right so something fundamentally was wrong.
Bob Harper
er, "small business audit burden" ???
As usual the Government (and the Labour one was just as bad) fail to accurately identify their target.
What most people think of as 'small businesses" are already exempt from the obligatory independent audit. The main thrust of this proposal would only affect those companies with a turnover that is above £6.5m
Mark
Joint filing v no Companies house filing ?
I'm confused , I really am .
With modern software that produces full and abbreviated accounts together and joint electronic filing, it doesn't make any difference whether we have to file one set or two . How can abolishing the Companies House filing requirement save millions of pounds ?
Last year late filing small businesses were threatened with record fines and told to get their accounts in early. Now those accounts aren't wanted at all.
Also, what is going to happen when an OMB company tries to borrow money or get credit from suppliers ? If suppliers and banks don't have up to date Companies House information, will we see a mini credit crunch for OMBs ? Will we have to send full accounts to suppliers and do individual references or should we just go out and buy shares in Experian before someone else does?
"Accounts" = tax comp
We will hear more this afternoon presumably.
I do not think that are talking about Full / Abbrev at all.
What I think they are meaning is that the really small companies will only have to produce "tax accounts" - ie no GAAP/CA2006 acounts at all.