The UK government has issued a proposal that
would see reduced financial reporting requirements for SMEs in
order to save companies more than £600m ($917m) on accounting fees
and administrative costs.

The consultation Audit Exemptions and
Change of Accounting Framework
by the Department for Business,
Innovation and Skills sets out plans to allow more small companies
and subsidiaries to decide whether or not to have an audit.

The government is also proposing to introduce
legislation in 2012 to exempt most subsidiary companies from
mandatory audit, provided their parent is prepared to guarantee
their debts. This would lead to savings estimated at £406m per
year, according to the government.

Currently in the UK, SMEs have to meet
turnover and balance sheet thresholds to be exempt from audit.

Under the new proposals, UK SMEs would be
eligible for audit exemption by meeting any two of the three
criteria – turnover, balance sheet total and number of

The Minister for Corporate Governance Edward
Davey said the volume and costs of reporting requirements for UK
companies have increased and businesses have stressed the need for
more flexible and targeted rules.

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 “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,” Davey said.

In response to the consultation Institute of
Chartered Accountants for England and Wales (ICAEW) chief executive
Michael Izza said audit plays a vital role in the oversight and
governance of companies.

“In my view many SMEs and subsidiaries will continue to choose
to have an audit, even though they may qualify for exemption,
because it provides confidence and peace of mind. It can be
important to have audited accounts when pitching for contracts or
seeking finance,” he said.

Grant Thornton head of assurance Phil Crooks agreed and added audit
provides credibility to the HMRC, finance providers, creditors,
potential employees and advisors particularly in this economic
environment where people are uncertain.

Crooks said despite welcoming the consultation he is unclear about
the government’s interpretation about EU gold plating, “when it is
actually more UK gold plating”.

“The UK has actually driven the sort of exemption that goes even
further for small companies then the EU, in a sense that we require
the balance sheet and the PNL requirements to be met rather then
just two out of the three like the EU require,” Crooks said.

The consultation is open for comment until 29 December.