Law: Freeing the little fish from the regulatory net: Roger Trapp reports on recent moves to exempt small companies from rules on disclosure and annual accounting

It is one of those strange pieces of timing that just as one accountancy group was preparing to announce its practical solution to an aspect of deregulation, it emerged that another was preparing to carry the process much further.

The debate is still continuing over the effectiveness of exempting - partially or totally - small companies from having their annual accounts audited. It has long been pointed out, for instance, that banks will require audits before approving any significant loans.

Last week, however, the Auditing Practices Board cleared up the confusion as to what it expected from the half-way-house compilation report that companies with turnover of more than the total exemption threshold of pounds 90,000 and less than pounds 350,000 will have to obtain from 'suitably qualified accountants'.

Roger Lawson, president of the Institute of Chartered Accountants, has welcomed the APB's new guidelines, published on 21 October. He says the removal of the words 'audit' and 'examination' in what the APB terms 'audit exemption reports' should ensure there is no confusion 'as to the assurance the report gives compared to that given by an audit'.

He is also pleased that the board has answered a recurrent criticism of the draft guidelines by making the statement shorter and easier to understand.

But he warns: 'The deregulatory objective of exemption from audit will only be fully served if the annual accounting and disclosure requirements for small companies can also be relaxed.'

The gist of the consultation document on this issue has already leaked out.

Namely, companies with annual turnover of less than pounds 2.8m should be exempt from all but four of the existing statements of standard accounting practice and all the financial reporting standards produced by the Accounting Standards Board.

This is the sort of change that advisers called for when the campaign to abolish the audit for small companies began in earnest a couple of years ago. But even so, Ken Wild, the Touche Ross technical partner who chaired the working party drawn from the various accountancy bodies, feels the report is 'radical'.

Pointing out that it went 'a long way beyond compilation reports', he says the paper - to be formally published within two to three weeks - is 'proposing some fairly major changes'. Although it will go out for public comment, he hopes that the presence of representatives of the various groups that used accounts will ensure that the final version is not too far removed from the original.

'I think the case is well made, although some people will instinctively say 'you can't do that',' he says.

The working party, which was set up with the approval of the Accounting Standards Board, originally attacked the problem of deciding which companies to exempt from regulation by considering the ideas of cost-benefit tests and 'public-interest' companies. But in the end, Mr Wild says, it went for 'a quite different argument' - communication.

He says there are many complicated rules for large companies that carry out many different transactions in the course of a year. But he believes that it is inappropriate that small companies should be burdened with these rules, where such occurrences would be either one- offs or not happen at all.

'If you don't push them into complicated rules, you make their accounts easier to understand,' he says, adding that accountants should not have to explain accounts to the managers of the business to which they relate.

But having been radical up to this point, the group opted for pragmatism when deciding on what made a small company. The figure of pounds 2.8m turnover is the definition in the Companies Act.

Even so, that takes 90 per cent of companies out of the regulatory net. And it makes one wonder why so much effort has been spent taking many fewer companies out of the requirement for statutory audits.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: 3rd Line Virtualisation, Windows & Server Engineer

£40000 - £47000 per annum: Recruitment Genius: A 3rd Line Virtualisation / Sto...

Recruitment Genius: Refrigeration and Air Conditioning Service Engineer

£26000 - £35000 per annum: Recruitment Genius: A successful national service f...

Recruitment Genius: Business Development Executive / Sales - OTE £25,000

£15000 - £25000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Sales Administrator - Fixed Term Contract

£17500 - £20000 per annum: Recruitment Genius: We currently require an experie...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?