The DTI has recently issued a consultation paper looking at the possibility of increasing the turnover threshold for companies to be able to be exempt from a statutory audit. The exemption is currently £1million and we understand that the Government “is minded” to increase this to the EU maximum of approximately £5.6million.
Is this a good thing in general or is it a step too far?
Clearly imposing the additional costs of an audit on companies if there is no value is wrong. But is there a value, not only to the company and its shareholders, but to the economy in general. I believe there is. I am sure that many would feel that this is just an accountant protecting his income but if we look more carefully at this we will see many reasons why an audit should be compulsory for the majority of companies with a turnover of £1 million plus.
The government has made great play of the fact that if an audit is of value then companies would opt for a voluntary audit. This, of course is true for many companies, but does anyone believe that a company which wants to issue misleading information would voluntarily opt for an audit?
It must also be remembered that if an audit is not required then there is no compulsion to involve a qualified accountant at all. This will almost certainly mean that the quality of accounts available on which many commercial decisions are made will decrease. In view of the fact that government is currently considering abolishing Abbreviated Accounts so that the accounts filed at Companies House gives substantially more information one must ask what is the point of increasing the amount of information if at the same time, by raising the audit threshold, the quality of that information falls significantly.
A further consequence of raising the audit threshold by such an amount would almost certainly be a substantial reduction in firms which are Registered Auditors. This affects not only limited companies but other bodies particularly charities. Current charity law required all charities, whether incorporated or unincorporated, with gross incomes greater than £250,000 to have an audit. This currently represents over 10,000 charities. Many of these audits are done at well below normal rates but as the number of Registered Auditors decreases these charities will inevitably find it more difficult to get the audit done at a price they can afford to pay.
Overall I believe that an audit does have a value. I also believe that raising the limit to over £5million will have a detrimental effect in many ways although I accept that this is difficult to quantify.
Many of our clients already agree that an audit is worthwhile and have demonstrated this by continuing to choose to have one even though they could have currently claimed exemption. If you have any views on this I would be delighted to hear from you. My details are in the contact section of this website.
Clive Jones – Clifford Towers, Chartered Accountants
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