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Audit exemption and accounting changes ‘could save businesses £600m’

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The government is consulting on plans to allow more small companies to decide whether to have an audit and a proposal to give companies preparing accounts under IFRS ‘more flexibility’ to change to UK GAAP.

The changes could benefit more than 100,000 UK businesses, according to the Department for Business, Innovation and Skills.

SMEs would be eligible for audit exemption by meeting any two of the three criteria, linked to turnover, balance sheet and number of employees, used to determine whether a company is ‘small’ for accounting purposes.

At present, to obtain the audit exemption a small company must meet both the turnover and balance sheet criteria.

The government also proposes to exempt most subsidiaries from audit ‘provided their parent is prepared to guarantee their debts’.

‘Every company requires robust financial controls and appropriate governance and for many companies audit will be a vital part of this. However it is well established in the UK that the requirement for audit should not be imposed by law on all companies,’ the department said in Consultation on audit exemptions and change of accounting framework, published today.

In an impact assessment, the department recognises that ‘if the lack of audit led to material misstatement of profits in companies then this could potentially lead to a tax loss to the Exchequer’. However, HMRC ‘has powers to ask for additional explanations and information, where it feels this is necessary’.

Comments are invited by 29 December 2011.