MyCIMA

BIS consults on audit exemption and a change to the accounting framework

Posted: Friday 21 October 2011 by Nick Topazio
Replies : 1

Under current EU regulations, companies would qualify to be treated as ‘small' for accounting purposes if they meet any two out of three criteria relating to turnover, balance sheet total and number of employees.  A company must have no more than 50 employees, a balance sheet of no more than £3.26m and a turnover not exceding £5.6m. 

However, UK rules are more stringent as they specify that a company should meet both the turnover and balance sheet total criteria to qualify as small.  BIS propose to revise UK Company Law to introduce the EU requirement of any two from the list of three.

In addition, BIS propose to remove the requirement for an audit of subsidiaries, provided the parent company is prepared to guarantee the debts of the subsidiary.  The consultation paper also addresses anomalies regarding the choice of accounting framework - IFRS or UK GAAP.

The deadline for responses to BIS is 29 December 2011.

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Letter-to-Mr-Rufus-Rottenberg-17-01-12.pdf73.92 KB

CIMA Response

Posted by Nick Topazio on Tuesday 17 January 2012 11:46

CIMA has now responded to this consultation.  The following are selected extracts from this response which will be posted here in full shortly.

CIMA agrees with the Government's view that every company requires robust financial controls and appropriate governance arrangements and for many companies audit will be a vital part of this.  

....the benefits of audit vary according to company size and we further agree with the government's assessment that there does not appear to be systemic risks to reducing the mandatory audit requirements for unquoted companies.

We agree that UK and EU law should be aligned in respect to the qualifying conditions for audit exemption i.e. a small company would be able to obtain the audit exemption if it met any two out of the three criteria relating to turnover, assets and number of employees.

We agree that directors should strive for consistency when selecting appropriate accounting policies and that this should be extended to the choice of accounting regime.  Any decision to switch between IFRS and UK GAAP principles should only be taken for good accounting reasons not for instance on the basis of which portrays the financial position in the most favorable light.