Finance experts argue against exempting SMEs from audit reviews

News Article - 09 May 2011
Category: Business

Advocates of small and medium-sized enterprises submitting audit reviews fear the Business Secretary's calls to exempt SMEs from statutory audits could deter banks financing them.

Vince Cable's decision to raise the threshold to relieve smaller businesses of such financial and administrative burdens as audits could have a lasting negative impact on the relationship between small businesses and banks.

Organisations without robust financial reporting are unlikely to receive financial aid from banks, potentially leading to a funding crisis.

Andrew Watkin, partner at Baker Watkin, maintained the value of SME auditing suggesting they can buoy company credit ratings and encourage banks to lend.

Mr Watkin did however add that the difference in financial controls between businesses turning over £6 million and £8million is negligible and that it would be more prudent to raise the SME audit threshold to the £20 million mark.

However, many mid-tier business experts refute these claims, suggesting banks attach more importance to robust internal reporting with management of accounts and reviews from existing clients and suppliers.

Critics warned lifting the threshold as high as £20 million as it would increase the risk of financial mismanagement and poor internal controls for a significant number of mid-tier companies.

Jonathan Russell, partner at ReesRussell, went as far as to suggest many banks do not understand the audit process anyway and that the preparation process of a company audit means financial documentation can be out-dated as much as two years before reaching the public domain.

Mr Russell does however support the decision to raise the threshold for SME audits as neither fraud nor reporting to shareholders are relevant when company directors are simply beholden to themselves as is the case in many SMEs and business start-ups.

On the whole an SME audit remains important to smaller businesses as it demonstrates accountability to other organisations, potential clients and financial lenders. As a result accounts software is now readily installed by SMEs in a bid to improve the efficiency of their financial processes and ensure transparency for reporting and auditing.

Article keywords: Accounts software, business reporting, SME, Business Secretary, Vince Cable, Andrew Watkin, Baker Watkin, audit reviews, Jonathan Russell, ReesRussell

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