More than 100,000 UK businesses could save over £600m in accountancy and administration costs every year under proposals to reduce financial reporting requirements.
The consultation on Audit Exemptions and Change of Accounting Framework sets out plans to allow more small companies and subsidiaries to decide whether or not to have an audit.
Current EU rules mean that to classify as ‘small’ for accounting purposes, a company must comply with two out of three criteria relating to their turnover, balance sheet total and number of employees.
However, to obtain an audit exemption in the UK, small companies must fulfil both the balance sheet and turnover criteria. Under the new proposals, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria, saving them an estimated £206m per year.
The Department for Business, Innovation and Skills is also proposing to introduce legislation in 2012 to exempt most subsidiary companies from mandatory audit, provided their parent is prepared to guarantee their debts. Savings are estimated at £406m per year.
In total, removing this EU gold plating could save UK businesses £612m every year. These moves are part of the Government’s wider focus on cutting red tape and reducing unnecessary burdens on business, in particular addressing the impact of European legislation.
Additionally, following the consultation by the UK Accounting Standards Board on changes to UK Generally Accepted Accounting Principles (UK GAAP), the Government is also seeking views on whether to allow companies which currently prepare accounts under International Financial Reporting Standards (IFRS) more flexibility to change their accounting framework to UK GAAP.
The Minister responsible for Corporate Governance, Edward Davey, said: “Over time, both the volume and costs of reporting requirements for UK companies have increased, and businesses have stressed to us the need for more flexible and targeted rules. Tackling these problems now will save UK SMEs millions every year and give them more opportunities to expand and grow their business.
“Audit is very valuable for many companies. But the proposals we’ve published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth. So I encourage businesses to read the consultation document and share their views with us.”
In March, the Chancellor and Business Secretary published The Plan for Growth. One of the Plan’s ambitions is to ensure the UK ranks among the best places in Europe to start and grow a business. In order to achieve this, the Government is committed to removing regulatory burdens and improving corporate governance
The consultation launched today covers the whole of the UK and will close on 29 December 2011.