On 6 October 2011 the Department for Business, Innovation and Skills (BIS) published proposals for consultation which allow more small companies and subsidiaries to decide whether or not to have an audit. This is part of the Government’s wider focus on cutting red tape and reducing unnecessary burdens on business, in particular addressing the impact of European legislation and areas where the UK gold plated EU requirements.
Under current EU rules (as enshrined in the Companies Act 2006), in order for a company to qualify as small, it must comply with two out of three criteria relating to their turnover, gross assets and number of employees. However, to obtain an audit exemption in the UK, small companies must fulfill both the assets and turnover criteria.
Under the new proposals, companies would be eligible for audit exemption by meeting any two of the three criteria. BIS estimates that this would save affected companies around £206m per year.
However, it would mean that some very large companies would become audit exempt. Two of the most common types of company that would be affected are:
Property investment companies – it is common to see such companies with tens if not hundreds of millions of pounds worth of assets but few employees and turnover below the current threshold
Service companies – many service companies have few assets but can generate turnover of tens or hundreds of millions of pounds with fewer than 50 employees.
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. Savings are estimated at £406m per year.
However, it is far from certain that parent companies would be prepared to provide such guarantees. There may also be a number of practical issues to resolve, not least the difficulty of creditors in the UK needing to apply to foreign courts to enforce the guarantee in the event of a subsidiary’s insolvency.
These proposals will have a significant impact on some firms of accountants and their clients, and so firms are strongly recommended to read the proposals and respond before the deadline of 29 December 2011. The consultation document, response form and contact details are available - click here.
Need a file review?
File reviews from £160* an hour plus FREE written report
SWAT UK can review your files by post or electronically, from just £160 an hour. All file reviews include a full written report to help improve your compliance and efficiency on future files. This review method is often best suited to audit files but SWAT UK are happy to discuss the practicalities of other postal or electronic review types with you.
On-site file reviews from £1100 a day* (outside of London)
(On-site file reviews in London start from £1320 a day*)
SWAT UK can conduct a number of different reviews on the same day. For example, a selection of your audit files could be reviewed in the morning, followed by a Practice Assurance review in the afternoon.
All on-site file reviews include a full written report and debrief.
For more details and to arrange a review, email membership@the2020group.com.
*Prices quoted exclude VAT and expenses and are valid until 31 December 2011.
Prices quoted are for a “standard” visit outside of London. The cost of some reviews may be higher.
