2. Professor Robin Jarvis Head of SME Affairs

3. Developments with the small audit

4. The option to exempt small entities from the statutory audit was introduced under the EU 4th Directive Thresholds based on a business entities level of annual turnover, balance sheet total and the average number of employees European Audit Thresholds

5. Annual Turnover – £6.5m Balance Sheet Total - £3. 26m Average Number of Employees – 50 (In Pounds Sterling – from April 2008) Current EU Thresholds

6. ..not enough auditors in mainland Europe Cost and benefits …burden on small business entities Political motive e.g reduce the regulatory burdens on SMEs Motive for introducing the audit exemption

7. Burdens and ‘Simplification’ policies Impact assessment = cost and benefit analysis but have they been rigorous? Easy to calculate costs but much more difficult to calculate the benefits BUT well functioning capital markets are those which have an effective framework of regulations Burdens: Cost / benefit issues

8. Primarily designed for large listed companies are they relevant for small entities? Growing recognition of complexity of ISAs IFAC SMP Committee input into IAASB IFAC Guide International Standards of Auditing (ISA) (1)

9. Sylvie Voghel …improved quality but at the same time a disproportionate increase in cost Wong Report – September 2004 The case for separating auditing standard for small and large companies? International Standards of Auditing (ISA) (2)

10. ‘An audit is an audit’ John Kellas … Maintains credibility – in terms of user perception! Reduces uncertainty about the levels of assurance Conclusion: ISA’s represent an increase cost burden on SMPs > SMEs International Standards of Auditing (ISA) (3)

11. UK experience Compilation Report Alternative forms of assurance

12. Research – determining the demand for the audit from a small companies perspective (ICAEW 2000; DTI 2004 ; BERR 2008) Expectation from research: high uptake of voluntary audit if max threshold applied Reality: only 17% have a voluntary audit…this may be driven by Trade Associations etc UK experience of the effect of introducing audit thresholds (1)

13. Government Consultation: many users ‘supported’ the increase of the threshold to max level; including Tax Authority! Research in Denmark and Sweden: Tax Authorities support the case for audited accounts Reduction of SMPs being able to offer training contracts ….will the ‘big four’ be the only trainers? UK experience of the effect of introducing audit thresholds (2)

14. Current environment: The number of large and medium firms are declining in the UK! A worry - Non professional accountants moving into the market …quality of service …ethical codes! Accounting profession lobbying Government to recognise and protect the brand/label ‘Accountant’ UK experience of the effect of introducing audit thresholds (3)

15. BUT Accountants are in a preferred position! In all the surveys/research world wide Accountants are the first call by businesses for advice …. Mainly from UK sources ….but research in Norway by Paul Gooderham supports this position SMPs : a way forward

16. Financial Reporting for SMEs…compliance and enforcement of accounting standards e.g. IFRS for SMEs? It is important when constructing regulation/standards they must be bottom up Opportunities for accountants Conclusion