Accountancy: Baulking at easing the audit burden: Roger Trapp reports on long delays over government plans to remove a yearly hassle for small businesses

THERE is more than a little irony in the fact that a measure designed to reduce the regulatory burden on companies seems to be taking an age struggling through bureaucratic obstacles. Indeed, the story of the abolition of the audit requirement for small companies has been studded with false dawns over the years.

This would have been more understandable if there had been widespread disagreement over the idea, but there did not appear to be. Since several years ago, when it became clear that the Government might be prepared to do away with full audits of the accounts of companies with small turnover, there have been few voices of protest.

Loudest of these was that of the Chartered Association of Certified Accountants which, in the UK, draws most of its membership from firms acting for the sort of companies that might be exempt. Understandably, perhaps, it sought to make the idea a matter of principle linked to limited company status.

Just about everybody else concerned, it appeared, was busy pressing the Government to get on with it. Small business lobby groups, such as the Forum of Private Business, saw their costs being reduced. At the same time, the Institute of Chartered Accountants in England and Wales, like its counterpart in Scotland, regarded abolition as a way of encouraging smaller accountants to use their financial advisers more effectively, in particular to obtain forward-looking rather than backward-looking information.

Such was the weight of opinion that when Kenneth Clarke, the Chancellor, indicated last November that there would be changes, many people must have thought they had already been made. Instead, six months later, the new rules are still not in place.

What there is so far is a set of draft regulations that were open for comment until earlier this month. Under them, companies with turnover of less than pounds 350,000 will be able to replace the statutory audit with a compilation report by a qualified accountant stating that the accounts have been drawn up properly.

Companies with turnover of less than pounds 90,000 will be totally exempt from the audit, provided the balance sheet does not exceed pounds 1.4m, the company is not a public limited company or part of group and it is not regulated under the Financial Services Act. In both cases there are provisions to allow the shareholders to request an audit. The Government estimates that about 500,000 companies could be affected.

Perhaps because it is keen to show that it is not solely concerned with the issues of interest to the large accounting firms and their clients, the Auditing Practices Board, under new chairman Ian Plaistowe, has rushed out a draft exposure on the conduct of compilation reports before the Department of Trade and Industry has had much chance to digest the responses to its proposals.

The draft issued yesterday is hardly revolutionary stuff - mainly dealing with matters such as form and content of the compilation report, the terms of engagement and the procedures to be followed - but it seems a little odd to have these proposals while there is still some uncertainty about the regime to which they will apply.

For instance, the English institute says a main concern is the 'bizarre transitional arrangements' which it says result from a lack of prior consultation. The Scottish institute adds that the lack of rules for 'companies which fluctuate in and out of the exemption criteria' is likely to cause problems.

Both groups also believe the draft rules themselves suffer in this way. They are particularly worried about the rule that those holding a tenth of the issued share capital will be able to demand an audit. They say the regulations should make clear whether the veto relates to all share capital, each class of share capital or each class of voting share capital.

Such objections could be put down to the fact that they come from organisations that have long believed the reform should go much further.

Roger Lawson, new president of the English institute, is keen that his year in office will see exploration of other ways in which the burden on smaller businesses can be lifted, while the Scottish group's submission to the DTI says: 'The threshold limits could be raised to allow a greater number of companies to benefit from the exemption.'

More worrying perhaps are the doubts beginning to appear from within the profession about whether all this effort is going to achieve much. According to a national survey covering firms of all sizes by Accounts Consultancy & Training Company, the practice management firm run by former Joint Monitoring Unit inspector Roy Kemp, the majority of accountants feel there will still be demand for audited figures. Consequently, few are planning to de-register as auditors.

Saying that the changes were not likely to be the landmark event that had been originally thought, Mr Kemp also points out that many clients could be in for a disappointment.

Most limited companies will not be pure audit clients; they will also be accounting clients. Accordingly, the savings brought about by the end of the audit may not be as great as they expect.

Others are more blunt. Anthony Marshall, of Hampshire firm Marshall Roche, said: 'In their rush to score political points out of this matter, the Government have not allowed sufficient time to ensure the proposals are workable.'

While acknowledging the wisdom of removing unnecessary elements in accountants' work, he added: 'To tell small businesses that their burden is being lifted when, in the fullness of time they will realise that it is not, is nothing more than a cheap and nasty political trick.'

(Photograph omitted)