Accountants debate the value of SME audits

Banks will not want to finance SMEs if they are exempt from auditing regulations, warn some financial experts.

Vince Cable, the business secretary, has called for an increase in the threshold in order to relieve smaller enterprises of the administrative and financial burden of yearly audits.

Under current regulations, companies whose turnover does not exceed £6.5 million or with a balance sheet of under £3.26 million are exempt from audit. A new test has been introduced that allows firms employing fewer than 50 employees and satisfying the above criteria are also exempt.

However, SME audit advocates have warned that financial institutions will not want to lend money to firms without robust reporting; a situation which could force them into a cash crisis.

Jonathan Russell, a partner at ReesRussell chartered accountants, said that a lot of banks don’t understand audits and claimed that the documents can be 18 months out of date because of the lengthy preparation process. Another expert said that robust internal financial reporting is sufficient for the majority of lenders.

Mid-tier accounting firms could lose out if audit requirements disappear, but despite this, a lot are keen to see the changes implemented in order to save their clients’ money. Raising the threshold will enable 42,000 small businesses to save a total of £40 million every year, according to Cable.

Regardless of the outcome of the audit debate, SMEs will still need to seek the advice of accountants on matters such as risk management and internal reporting.

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