Audit exemption for small firms is to be welcomed

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Firms are obliged to undertake a number of reporting requirements, yet there are concerns that requirements have become increasingly demanding and costly over the years.

That’s why I was pleased to see the government making a concerted effort to lift thousands of businesses out of annual audit regulation.

What’s changing? 

The government is proposing to allow more companies to make a commercial decision over whether or not they carry out a statutory audit.

At the moment, companies must meet all three of the following criteria to obtain an exemption from audit:

• no more than 50 employees

• no more than £3.26 million on their balance sheet

• turnover of less than £6.5 million

But under the new regulations, expected to come into force for accounting years ending on or after October 1st 2012, small firms will be able to obtain an exemption from having to carry out a yearly audit by meeting two out of three criteria.

This move will give 36,000 more companies the freedom to choose to not to have an audit. The government says it will also remove most subsidiary companies from mandatory audit – benefitting 83,000 subsidiaries.

Moreover, another 67,000 dormant subsidiaries will no longer need to prepare and file annual accounts.

Benefits

Vince Cable, the business secretary, said the move would help companies save millions of pounds every year and give them more room to expand and grow.

The changes to audit rules are likely to save companies up to £2.4 million per year in fees, according to the Department for Business, Innovation and Skills.

Mr Cable said: “Reporting requirements have become increasingly demanding and costly over the years.”

“We listened to business, who made a strong case for reform, and I am delighted that we are now taking this opportunity to make audit more flexible and targeted.”

Good news

The decision to exempt from annual audit is not one to be taken lightly – it’s important not to overlook the assurance an audit can give to shareholders and directors – this move should give companies a greater degree of flexibility and more room to expand, develop and grow.

It’s also a further sign of the government’s commitment to reducing unnecessary regulatory burdens. Could it make the UK one of the best places in the world to start, finance and grow a business? I hope so.

 

Posted by the Secret Businessman