The Government’s response to the consultation on Audit Exemptions and Change of Accounting Framework confirms plans to allow more companies to make a commercial decision about whether or not to have a statutory audit.
Vince Cable said:
“Reporting requirements have become increasingly demanding and costly over the years. We listened to business, who made a strong case for reform, and I am delighted that we are now taking this opportunity to make audit more flexible and targeted. Tackling these problems will help save UK companies £millions every year and free them up to expand and grow their business, which ultimately benefits the entire British economy.“
Currently, to be eligible for an audit exemption in the UK, small companies must be less than a certain size in terms of balance sheet and turnover. The new regulations will align mandatory audit thresholds with accounting thresholds, meaning SMEs will be able to obtain an exemption if they meet two out of three criteria relating to balance sheet total, turnover and number of employees. This change will allow 36,000 more companies to choose not to have an audit.
The Government will also exempt most subsidiary companies from mandatory audit, as long as their parent company guarantees their liabilities. A further 83,000 subsidiary companies will benefit.
In addition, another 67,000 dormant subsidiaries will no longer need to prepare and file annual accounts, provided they receive a similar guarantee.
Following consultation by the Financial Reporting Council (FRC) on changes to UK Generally Accepted Accounting Principles (UK GAAP), the Government has also decided to allow companies that prepare their accounts under International Financial Reporting Standards (IFRS) to move to UK GAAP and take advantage of reduced disclosures.
The new regulations will remove EU gold-plating and ensure UK SMEs are not at a disadvantage compared to their European competitors. These changes are part of the Government’s wider drive to reduce unnecessary burdens and make the UK one of the best places in the world to start, finance and grow a business.
The regulations are expected to come into force for accounting years ending on or after 1 October 2012.
Notes to editors:
- The Government response and associated documents are available at http://www.bis.gov.uk/Consultations/audit-exemptions-and-accounting-framework?cat=closedwithresponse
- EU rules state that to be classified as ‘small’ for accounting purposes, a company must comply with two out of three criteria in order. Under the current thresholds, SMEs must have no more than 50 employees; no more than £3.26 million on their balance sheet; and less than £6.5 million in turnover.
- Department for Business, Innovation and Skills (BIS) estimates that the new audit exemption measures will save businesses at least £100m and possibly as much as £390m per year. Final figures will be provided in the 5th Statement of New Regulation. The net benefit of permitting companies more flexibility to change their accounting framework will be £2.4m per year.
- The Government's economic policy objective is to achieve 'strong, sustainable and balanced growth that is more evenly shared across the country and between industries.' It set four ambitions in the ‘Plan for Growth’ (PDF 1.7MB), published at Budget 2011:
- To create the most competitive tax system in the G20
- To make the UK the best place in Europe to start, finance and grow a business
- To encourage investment and exports as a route to a more balanced economy
- To create a more educated workforce that is the most flexible in Europe.
Work is underway across Government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the Government wants the economy to travel.
- BIS's online newsroom contains the latest press notices and speeches, as well as video and images for download. It also features an up to date list of BIS press office contacts. See http://www.bis.gov.uk/newsroom for more information.