To: Dept of Trade & Industry of the UK
Dear Sirs,
DTI CONSULTATIVE DOCUMENT
- THE STATUTORY AUDIT REQUIREMENT FOR SMALLER COMPANIES IN UK
" … whether the balance of costs and benefits supports a mandatory requirement for an external audit for companies of a certain size."
A - OWNER DRIVEN SMALL CO
A mandatory external audit is not valuable to small companies which are "owner driven" to coin a phrase. A taxi driver who owns and operates a taxi does not want or need to pay someone to tell him how many times he crunched the gears, jumped the red light, parked on double yellow lines, breached the speed limit, etc. He knows it all too well.
B - STEWARDSHIP OR PROFESSIONAL MANAGEMENT IN SMALL CO
At the other end of the scale, a mandatory external audit is essential to a company which is owned by those who employ a separate director or a professional team of management to operate the company under stewardship. Here an external auditor has a valuable function welcomed by all.
C - MINORITY INVESTORS IN SMALL CO
In between the above two scenarios are a number of small companies which have a minority of investors who do not actively participate in the day to day running of the company's business. Minority shareholders fall into the following distinct categories:
1 - those who do not doubt the integrity or ability of their directors
because of their close relationship and/or inter-dependence
2 - those who routinely need third part assurance for the truth and
fairness of the company's reporting and financial statements
3 - those who are ambivalent about the directors and so need third
party assurance
4 - those who are in conflict with the directors.
A - OWNER DRIVEN SMALL CO
The external audit is regarded as an unwanted burden that is expensive in terms of costs and the time taken. Therefore it is highly resented.
B - STEWARDSHIP OR PROFESSIONAL MANAGEMENT IN SMALL CO
The external audit is essential and so would be willingly retained by the management and shareholders.
C - MINORITY INVESTORS IN SMALL CO
The external audit should equitably be accessible by those minority shareholders who need it. Since the minority protection under s249A-E is as low as 10% of the shareholders by number or value, it is very reasonable in view of the 25% stipulated in many other areas of Company Law. Perhaps the notification date for the requirement of audit could be improved from one month before the year-end to a more generous date such as up to the close of trading on the year-end date.
Regarding the question of increase in the limit of turnover, from my
experience as
- a registered auditor,
- a at audit seminars and
- the lead author of "Audit Manual: The Cost-Effective Method" there
is a widespread feeling amongst both small firm auditors and small company
shareholders that they need to be freed from the burden of a mandatory
statutory audit in order to compete more effectively in the globalisation
of commerce. Prices in £ Sterling could be more competitive if the
unnecessary and unwanted cost of the mandatory statutory audit is made
optional.
When small companies do not have a mandatory statutory audit for turnover
up to £4.11 million in Australia, £3.6 million in The
Netherlands, £3.6 in Germany, £3.16 in Spain, £2.0 in
France etc, it is only fair for small businesses in the UK to be allowed
a level playing field, if not be allowed
to be ahead of them.
Therefore, I urge the Secretary of State to raise the turnover limit for exemption from statutory audit to £4.2 million to accord with the Company Law definition of a UK small company.
Yours faithfully,
Jaffer Manek FCCA FCEA
With all the best wishes,
Jaffer Manek FCCA FCEA, Director,
Euro Asia Pacific Professionals Int'l Ltd
E-mail sales@euroaspa.com
Website www.EuroAsPa.com
Tel +44 (0)20 8445 2223 Fax 8445 2393