100,000 More Small Companies to be Exempt from Audits
An extra 100,000 small businesses could become exempt from completing an annual audit, under Government proposals to reduce financial reporting obligations.
The consultation, which proposes relaxing the ‘gold plating’ (adding features which aren’t necessary) by the UK of EU rules about small business auditing, could save businesses up to £612 million per year, according to the Government.
Under current EU legislation, to be exempt from an audit businesses have to comply with two out of three criteria:
- no more than 50 employees
- a balance sheet total of no more than £3.26 million
- no more than £6.5 million in turnover
However, to be exempt from a mandatory audit in the UK, small businesses and limited liability partnerships (LLPs) must fulfil both the balance sheet and the turnover criteria.
Under the new proposals, UK businesses can be eligible for an exemption by meeting any two of the EU conditions. This would still fall within the rules for EU companies and the Government estimates it could save UK firms up to £206 million per year in auditing costs.
Launching the consultation, the minister responsible for corporate governance, Edward Davey, 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."
The Institute of Directors’ head of corporate governance, Dr Roger Barker, welcomed the proposal.
"Many small companies will still wish to conduct an audit, but if these proposals are followed through it will give businesses more flexibility to save on a cost they may deem unnecessary in these difficult times," he said.
The consultation will run until 29 December and, if approved, will become law on 1 October 2012.