Should SMEs Undertake Voluntary Audits

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Small and medium sized enterprises (SMEs) face a variety of size-related challenges but they do also get to take advantage of certain benefits at the same time. In the EU one of these benefits is light touch regulation when it comes to the auditing and publishing of their accounts.

SMEs that qualify as small companies can avoid having to have a statutory audit of their accounts and are also able to file abbreviated rather than full accounts. This generally means cost savings which, when it comes to regulatory compliance, is something SME owners and managers usually applaud.

Despite the cost savings that freedom from auditing and publishing full accounts offers, there are certain advantages to providing that level of transparency for SMEs.

Exemption Limits for Small Companies

UK exemption limits for small companies are those set out in the Companies Act 2006 which refers to small companies having less than 50 employees, an aggregate turnover of not more than £6.5m net and a balance sheet total of not more than £3.26m net. These fall in line with previous EU limits of EUR 8m and EUR 4m which have recently been increased to EUR 12m and EUR 6m following the adoption of a new EU accounting Directive in 2013.

In addition to raising the threshold limits, the EU directive also enables member states to simplify the accounting regime for small businesses further. Member states have until July 2015 to implement the Directive but it is not yet clear what the final position will be in the UK.

The Benefits of SME Audits and Accounting Transparency

Although deregulation and the removal of red tape is generally a good thing, businesses should be aware that audit and financial transparency are not just pure costs but do in fact offer benefits too. Voluntary audits can be a valuable way to check that company records and systems are in order and provide an early indication where problems might arise.

Businesses that are approaching audit thresholds are wise to uncover and iron out any deficiencies that are identified well before they become subject to statutory audits. Meanwhile, businesses that are looking to raise finance either through bank loans or investment from external shareholders may find that this process is made easier if they have a history of transparency. The assurance and confidence full audited financial statements provide could be a critical factor when it comes to raising funds.

Comment

The full impact of the 2013 EU Directive is yet to be felt in the UK but broadly deregulation for SMEs should be welcomed. Opting to undertake voluntary audits and file full accounts is unlikely to be necessary for all businesses but is something that most should at least consider.

For more information please contact our expert, Neil Cundale