§ Lord Lucas of Chilworthasked Her Majesty's Government:
What progress is being made on the Government's review of audit and accounting requirements for very small companies.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield)My department has today issued a consultative document seeking views on proposals offering very small companies relief from the compulsory audit requirement. This follows a review of audit and accounting requirements for such companies conducted by my department in consultation with HM Treasury and the Inland Revenue.
The department is seeking views on proposals that very small companies may be exempted from audit if shareholders agree. Two alternative approaches have been identified and the Government will decide which option to adopt in the light of responses to the consultative document.
Option A: Abolition
Exemption from the audit requirement, with nothing to replace the auditor or audit report;
or
Option B: Replacement
In place of the audit report, a company would be required to provide a compilation report, produced by a suitably qualified independent accountant, confirming that the annual accounts have been prepared from the company's accounting records in accordance with the relevant format and disclosure requirements of the Companies Act 1985. The compilation report would be filed along with the accounts at Companies House. The accounts would include a statement by the directors as to their statutory duties in preparing them.
Option A offers a maximum deregulatory benefit to the companies themselves, whilst Option B offers eligible companies a more limited measure of relief in order to address the concerns of users of accounts.
Companies which would be eligible to take advantage of the audit exemption would be those:
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- with an annual turnover below the VAT registration threshold (which my right honourable friend the Chancellor of the Exchequer recently proposed to increase to £37,600);
- whose balance sheet total does not exceed £100,000;
- whose shareholders have unanimously voted to take advantage of the audit exemption;
- which are not public limited companies, part of a group structure or subject to a statute-based regulatory regime, such as the Financial Services Act 1986.
The exemption from the audit requirement would apply to a financial year for companies that, at the end of that year, satisfied all the above criteria.
A copy of the consultative document has been placed in the Library of the House. Comments should reach my department by 30th June 1993.