Quality of company accounts could decline if audit thresholds are raised

1st November 2013

Experts have warned that the quality and accuracy of company accounts could rapidly decline over the next decade if the range of businesses exempt from being audited increases.
 
As part of amendments to the European Union’s (EU) Accounting Directive, which was passed through European Parliament earlier this year, EU member states can increase the size of businesses that do not require audited financial statements. It is a move to help the smaller, fledgling firms to concentrate on business growth.
 
The Department for Business, Innovation and Skills (BIS) has been advised that they must monitor the quality of unaudited accounts files at Companies House as any deterioration would likely happen over a lengthy time period.
 
Speaking at an ICAEW event in London last week, Malcolm Bacchus, an institute council member, said accounts could "look worse than they are now" if audit exemption thresholds are extended to include companies with a turnover of less than €12m (£10.3m) and a balance sheet of less than €6m.
 
"There’s a whole tranche of businesses I worry about," added Bacchus, who voiced concerns that the BIS is making more work for itself, having last year aligned mandatory audit thresholds for businesses defined as 'small', and therefore exempt from an audit, under EU rules.
 
EU member states have until 2015 to implement the new directive, and the BIS is expected to consult on any changes in the next 12 months. However, accountants and capital providers are concerned about the implications of such amendments.
 
Stephen Pegge, director of group external relations at Lloyds Banking Group, feels that presenting auditing "as a burden" and something that is "required by law other than something of value" was not "terribly helpful".

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