Vince Cable, the coalition Business Secretary, has called for increases in the audit thresholds in order to relieve smaller businesses of what he has characterised as the administrative and financial burden of an annual audit.
Under current regulations, entities whose annual turnover does not exceed £6.5 million or whose gross assets are valued at less than £3.26 million are exempt from audit.
It has been suggested that audit thresholds could eventually rise as high as the large company benchmarks – currently turnover of £25.9 million or gross assets of £12.9m.
The Business Secretary has been quoted as believing that raising the audit thresholds may enable up to 42,000 smaller businesses to save an estimated £40 million each year. This may make a welcome headline for a government keen to nurture entrepreneurialism within the British economy, but is it truly in our best interests, asks Glen Evans-Finnis, Audit Manager at HSJ Accountants.
So what does an audit really do for your business?
In addition to its statutory obligations, an audit can be likened to an annual medical, an opportunity for external business advisors to assess your financial systems, to evaluate your own projections for the future of your business, and to offer advice to ensure that your systems and controls keep pace with the growth of your business, and continue to deliver the timely management information you need to make informed strategic decisions.
An audit also provides assurance to lenders, suppliers, and customers that your business is appropriately governed and managed.
An efficient, effective, quality, audit will deliver not only a timely, true and fair, statutory audit report, which is valuable in itself; but also written recommendations for improvements in your systems, procedures, and policies.
If, as the Chancellor of the Exchequer hopes, SMEs will lead the economic recovery, it is in all our best interests that they are properly regulated, and avoid significant risks not just for the benefit of their stakeholders, but for their employees and their families, their customers and suppliers, and for all their communities. We must learn from the near-collapse of the banking sector for which insufficient auditing must shoulder part of the blame; and ensure that, as a nationwide community, we nurture robust SMEs which will emerge as the powerhouses of an entrepreneurially-led recovery.
Imagine a world without SME audit?
Abolishing the requirement for MOT Tests would save motorists millions of pounds each year, but would you really want to take to the roads? We can all imagine what would happen – responsible motorists would keep their cars properly maintained, but those cars which need the MOT Test most would escape any kind of safety check. As a responsible director or shareholder, you may have faith in your own business; but would you really want to operate in an environment where your key customers and suppliers may or may not be taking all necessary steps to ensure the smooth continuation of their businesses?
For more information on HSJ Audit services please click here or call us for a chat on 0845 365 1000.