Accountants Wary of Need for Audit Exemption Plan

Small businesses as well as major trading subsidiaries may be able to decide whether to have an audit or not under governmental plans, even though accountants have questioned the cost-savings associated with these plans.

The Department of Business, Innovation and Skills (BIS) launched a consultation on last week which proposed savings for businesses to the tune of £612m in annual accountancy and administration costs.

The government has estimated that expanding the range of audit exemptions can benefit approximately 100,000 companies.

The Government has emphasised the benefits to small businesses. However, these proposals could mean that major trading subsidiaries of non financial groups are exempt from an annual audit, given that the parent company is willing guarantee the debts .

The Government stated that 83,000 subsidiaries may qualify, with each one saving between 10 per cent and 25 per cent of annual audit costs, which ranges from £8,000 for small subsidiaries to £83,000 for large ones, giving savings at £406m per year.

The Institute of Chartered Accountants in England and Wales has however warned that it is misleading to suggest cost-savings will be absolute.

Proposing a parent company guarantee exposes the group to further financial risk and the cost of providing this guarantee can outweigh the cost benefit of the audit exemption.