The Institute of Chartered Accountants for
England and Wales’s (ICAEW) believes the majority of SMEs will
continue to be audited even if the statutory audit limit is

The ICAEW’s comments follow the Department of
Business of Innovation and Skills (BIS) business secretary Vince
Cable’s proposals to make changes to regulation for small
businesses “to allow small firms to concentrate on growing and
taking on more people instead of paperwork,” by increasing the
exemption threshold for SMEs.

ICAEW’s head of SME issues Clive Lewis told
the International Accounting Bulletin the size of the
businesses likely to be caught in any increase in the exemption
limit are “significant businesses often with complex transactions
and often with multiple shareholding, which will mean many of them
will continue to opt for a voluntary audit.”

“The government is seen to be doing its bit by
reducing the apparent regulatory burden but it is a burden that
many businesses will opt to have,” Lewis said.

Lewis thinks this is a good thing” because a
voluntary audit can provide a more selective assurance approach not
available in a statutory audit. He also believes that those SMEs
who choose to not have an audit will probably take some other type
of assurance services from firms.

Association of Chartered Certified Accountants
(ACCA) head of technical John Davies said any business, whether
incorporated or not, needs to maintain a basic standard of
financial management, otherwise it risks going out of business and
its shareholders and customers risk losing their money.

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“It is worth pointing out in this connection
that HM Revenue & Customs (HMRC) has decided to undertake a new
campaign of carrying out spot checks on small firms’ business
records from next year: this underlines the importance that the tax
authorities are placing on proper financial management.”


In his announcement Cable said that while BIS
recognises the need for high quality standards in audit and
accounting, reform is needed in certain areas such as the SME audit
and account rules, and the current requirement for businesses with
less than 10 employees to produce two sets of accounts.

Other areas suggested for reform include:

  • EU restrictions to be lifted for medium sized
    businesses so they no longer need their account independently
    audited; and
  •  Relaxing the audit and accounts rules
    for subsidiaries.

The ACCA said there may be scope for relaxing
some of the current rules relating to the audit of subsidiaries.
But the sweeping reforms proposed for micro company accounting, and
the promised exemption from audit for medium-sized companies, are
both dependent on changes first being made to EU law.

“The recent motion passed by the European
Parliament to allow member states to exempt micro companies from
the current EU accounting rules shows no sign of becoming law given
the strong opposition from a number of member states, while the
proposal to exempt medium-sized companies from audit has yet to be
seriously debated at the European level.

“We fully support the Government’s goals of
encouraging entrepreneurship and achieving business growth,” said
John Davies.

“But sound financial planning and accounting
actively help to make those things happen, for example by making a
business more credible to lenders of finance and prospective
business partners and customers. We should not give the impression
that new and existing businesses will be helped to prosper by
viewing accounting and sound financial management as mere