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Audit exemption proposals panned

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7th Oct 2011
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Accountants have challenged the government’s audit exemption plans and its claim to save businesses £612m per year in accountancy costs. 

The Department of Business Innovation and Science (BIS) consultation on audit exemptions and change of accounting framework, published last week, aims exempt the smallest UK companies and their subsidiaries from the need for audit, starting from 2012.
Under the proposals, small companies would be able to take advantage of the exemption if they meet any two out of the three defining criteria:
  • Fewer than 50 employees
  • Balance sheet total: no more than £3.26m
  • Turnover below £6.5m.

Under current rules, firms must be under both the balance sheet and turnover totals to claim the exemption.

Edward Davey, the minister responsible for corporate governance, said: “Audit is very valuable for many companies. But the proposals we’ve published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth.”
The consultation claims the reforms would save 100,000 businesses £612m a year. But accountants across the board have rejected the simplification and cost-saving claims of the proposal, arguing the importance of audits for financial credibility. 
Henry Irving, head of audit and assurance at the Institute of Chartered Accountants in England and Wales (ICAEW), said: “If I was going to trade with a [subsidiary] and I wasn’t quite sure I completely agreed with the financial statements, it might make me think twice. Groups would be given a choice which is great, but they’d need to think pretty carefully before they changed governance structures.”
Jonathan Russell, partner at accountancy firm ReesRussell, said: “I am sure many businesses will see this as an opportunity to reduce costs, particularly those with in-house accounting skills where the audit has been seen as of little value.  
“However, previous reductions in audit requirements have not all led to savings but a realisation that much of the audit process can be valuable.”
The consultation forms part of the government’s wider campaign to lessen red tape and is running alongside a consultation to greatly reduce the statutory accounting requirements for micro entities and the Office of Tax Simplification’s review of small business taxation.
The consultation is open for discussion until December 29 2011 via the response form
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Replies (5)

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By Roland195
11th Oct 2011 12:18

but a realisation that much of the audit process can be valuable

Yes, to audit firms.

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By adrianstone
12th Oct 2011 11:43

two out of the three

I was hoping for big changes in the criteria... this seems a very minor tweak and it seems hard to believe it will lead to a significant rise in the number of audit exemptions.

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Replying to Kent accountant:
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By jonbryce
12th Oct 2011 12:31

Re: two out of the three

The main class of companies that will now be exempt is property investment companies where you have for example a £4m property, maybe £200k in rent and zero staff - it is managed by a letting agent.

An audit for a company like that isn't difficult, but it is a completely pointless box ticking exercise.  Anyone with an interest in the company is going to want to know the opinion of a chartered surveyor, not an auditor.

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By jon_griffey
12th Oct 2011 11:55

Subsidiary audits

To be honest it would be good to extend some sort of audit exemption to subsidiary companies.  My firm audits a number of subsidiaries of ineligible groups and some of them are very small companies.  One for example is a trading company with a turnover of 40K.  The audit process and our fees are quite disporportionate. 

Again this is another example of the stupidity of audit over-regulation over the last 20 years.  They have gone way too far with regulation such that the Government is compelled to exempt almost everyone from it.  What is the point of that?  I say bring back the Auditors Operational Standard and Example 8!

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By Roy Price
12th Oct 2011 12:22

Audit exemption

I welcome these changes - they have merely aligned the audit requirement with that of being able to be classified as a small business. 

I consider the limits should have been reviewed upward by now to allow for inflation.

It must be remembered that shareholders can request an audit if required; external financiers could also make having an audit a requirement of the financial provision if they felt it was necessary.

 

 

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