The government is to raise the audit exemption threshold to the maximum allowed under the EU’s Audit Regulation and Directive (ARD), dismissing claims from the accountancy profession and others that this would pose a risk to financial reporting
In a statement read out in parliament, Anna Soubry, minister for small business, industry and enterprise, said the decision had been made after considering responses to its discussion paper on the implementation of the ARD, which comes into force from 17 June 2016.
The government had concluded that companies will not be required to have an audit for the financial years commencing on or after 1 January 2016 if at their balance sheet date they satisfy at least two out three criteria, in general for two consecutive financial years.
The criteria are a turnover of under £10.2m, a balance sheet total of £5.1m or less, and fewer than 50 employees.
The statement said that estimates suggest raising the audit exemption thresholds will bring a further 7,400 companies within scope of the exemption, but said the government anticipates that 4,400 will choose to continue to have an external audit.
It said that of the 3,000 companies expected additionally to take up the exemption, some will seek alternative routes to ensure that the company’s systems are robust; for example, through assurance reviews or increased oversight of accounts preparation.
The statement acknowledged that some stakeholders favoured maintaining thresholds at the previous level or raising them to some intermediate level lower than the thresholds now used to determine a ‘small company’ for financial reporting purposes.
However, the government said it wanted to ensure the regulatory regime was as simple as possible, arguing that removing the link between the thresholds for eligibility for the small company regime and those for the audit exemption would introduce unnecessary complexity into company law and cause confusion for users.
The statement said that, in view of the issues raised by stakeholders, the government will keep the changes in the audit exemption thresholds under review.
Michael Izza, ICAEW chief executive, said: ‘We are disappointed government has decided to go down this route. We have consistently said over the last four years that audit promotes sound financial practice and protects against mismanagement, fraud and tax evasion.
‘There are many reasons why companies have an audit – to give shareholders confidence, satisfy tender requirements, and ensure reliable financial reporting. Even though a number of businesses are now potentially exempt we expect many will continue to choose to have an audit.’
The written statement is here
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