Good news on audit - or not?

A DRAMATIC increase in the audit exemption threshold means private companies with a turnover of up to £5.6 million will no longer be obliged to carry out a statutory audit. The current threshold is £1 million, and the new level is expected to take effect after the end of March next year.

The new threshold is the maximum allowed under European law and has been proposed by the government to reduce cost and inconvenience.

At first glance, this seems like a welcome development for smaller and medium-sized companies, but a word of caution is being sounded by industry insiders who point to the advantages of having an independent audit of company affairs.

Key points to remember include:

• Audit provides comfort for shareholders, particularly non-director shareholders
• Audit promotes transparency, and helps maintain confidence in the market place, and in the integrity and honesty of business
• Providers of finance such as banks may take reassurance from an independent check on the reliability and accuracy of financial statements
• Credit ratings may suffer adversely if financial statements are not audited
• Suppliers may require audited financial statements before providing trade credit facilities
• A history of audited statements can be of considerable assistance if a company is being sold - indeed, it may add to the value obtained

Elaine Olson, business assurance partner at the Northampton office of MacIntyre Hudson, said: "Without an audit, companies may lose the benefit of a professional and independent check and corroboration of their financial strategy. And while the audit process is not specifically designed to identify fraud, the lack of professional involvement could increase the risk of a fraud going undetected.