Do you need an audit? New criteria proposed

The Government has published proposals to reduce financial reporting requirements for small and medium enterprises.

The new proposals, which would allow more small companies and subsidiaries to decide whether or not to have an audit, could save more than 100,000 UK businesses more than £600 million a year.

Current EU rules mean that to classify as ‘small’ for accounting purposes, a company must comply with two out of three criteria in relation to turnover, balance sheet, and average number of employees.

But to qualify for audit exemption in the UK, small companies must fulfil both the turnover and balance sheet criteria, which currently means:

• Annual turnover must not be more than £6.5 million
• The balance sheet total must not be more than £3.26 million.

Under the new proposals, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria, to include the average number of employees, and saving them an estimated £206 million per year.

Other proposals include the introduction of legislation in 2012, which would exempt most subsidiary companies from mandatory audit, provided that their parent company is prepared to guarantee their debts, and save an estimated £406 million a year.

Commenting, Edward Davey, the minister responsible for Corporate Governance, said: “Over time, both the volume and costs of reporting requirements for UK companies have increased, and businesses have stressed to us the need for more flexible and targeted rules. Tackling these problems now will save UK SMEs millions every year and give them more opportunities to expand and grow their business.

“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. So I encourage businesses to read the consultation document and share their views with us.”

The consultation launched today covers the whole of the UK and will close on 29 December 2011.

Please contact us if you have any queries regarding your accounts.