Do your clients need an audit?
Originally sent: June 22, 2005About 18 months ago I addressed this question before the changes in legislation relating to the audit threshold. Now this legislation has been with us for over a year, and we also have the Company Law Reform Bill going through Parliament I thought perhaps it was about time to re-visit the question.
One of the clauses in this Bill would make an auditor criminally liable if they ?knowingly or recklessly issued a wrong audit report?. This is really little different to the criminal liability of anyone in our industry who recklessly gives completely wrong and inappropriate advice. Or that of a driver who causes an accident through reckless driving.
Interestingly, one of the big four accountancy firms has responded to this Bill by criticising the inclusion of the word ?reckless?. In other words, this audit firm would seem to be condoning the reckless provision of audit reports. Not simply mistaken ? we all make mistakes ? but reckless. I am quite sure that firm is not alone in this, and nothing I say here should be taken to indicate I think they are any different from other audit practices. They have simply put their collective head above the parapet and made their view public.
If audit firms want to retain the right to issue audit reports recklessly (and I am not saying they all necessarily do), perhaps our clients should question whether they really need an audit at all. Is it worth paying an additional fee simply to have a form of words in the accounts showing they have been audited? Especially as most of the people who might rely on that audit report will have read the same response as I have.
Since 1st April 2004, most clients do not need an audit unless they exceed two out of the three following criteria:
Employees 50
Turnover £5,600,000
Balance Sheet Total £2,800,000
It used to be the case that every company with a turnover of £1,000,000 or more required an audit, but this no longer applies. Check your clients? position against those three parameters. Do they exceed at least two? Or are they in an industry where an audit is required regardless of company size? If so, then sorry, but they will have to get an audit done even though they may not want to. If not, then perhaps they should review whether an audit report is good value for money!
As of the end of May this year, there were over 76,000 companies in the UK with a turnover exceeding £1,000,000 but which no longer statutorily require an audit. How many of them are blindly agreeing to an audit without knowing they do not need it?
Do your clients believe an audit report is good value for money? I leave that for you to find out!
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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