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Monday, September 10, 2012

Is relaxing the audit requirements a good thing?

The UK Business Secretary, Vince Cable, last week (6th September 2012) announced subtle but significant changes in the requirements for UK companies to be audited.

Previously companies in the UK would have to have had an annual external audit if they had either a Turnover of more than £6.5m, or Gross Assets of more than £3.26m. Now the Government has aligned the criteria to that of the official definition of a small company, which is one that meets two out of three of the following:

•             Turnover of more than £6.5m
•             Gross Assets of more than £3.26m
•             More than 50 employees

The Government suggest that this will allow 36,000 companies in the UK not to have an Audit, should they so choose.

In addition in return for a guarantee from their parent against their liabilities, most subsidiary companies will escape audit, as will dormant subsidiaries. How effective this change is will depend upon individual group’s perceptions on loosing limited liability over saving the cost of an audit.

This is yet another move, in the name of reduced regulation, to exclude the vast majority of UK businesses from any form of independent check and inspection. Is this a good idea?  Shareholders enjoy the benefit of limited liability, but what checks exist to ensure they are running their businesses properly?  External parties rely on the quality of the information reported by and about these businesses, yet fewer and fewer have any audit now; does this reduce the perceived reliability of this information?  What reassurance does an audit bring?

Having seen the quality of accounting records of many businesses when we first become involved with them, it could be suggested that relaxing external checks and controls could be a retrograde step

Let us know what you think?  Post a comment below.

1 comment:

  1. Hi Garry

    I completely agree with you. It is tantamount to not having an MOT on your car.

    It is not only external perception; being accountable to a third party provides a focus for businesses to make sure they are up to speed with things.

    In today's world where businesses focus most on the top line and have a small back office -it is definitely a bad move.

    All the best



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