Could audit reforms leave you without an auditor?
Over the last five or six years, the UK audit market has been in an enormous state of flux. Audit is a highly regulated business and regulatory bodies have become increasingly strict about how audit firms interpret and apply auditing standards.
Larger companies require an audit each year – there is a complicated rule, involving turnover (with a £10.2 million limit), total assets (£5.1 million) and the number of employees (50). If you breach the limits of two of these for two years on the bounce, you will probably need an audit. An annual audit provides assurance to shareholders that the financial statements show a ‘true and fair view’ of the company.
As a UK Top 50 firm of Chartered Accountants and Business Advisers, Westcotts is an audit firm of choice in the South West. Our job is to sign an ‘opinion’ on the annual accounts of businesses that we audit and provide ‘reasonable assurance’ that they comply with the requirements.
When we conduct an audit, we must work within the regulatory framework, and audit firms such as Westcotts are subject to regulatory inspections by the Institute of Chartered Accountants in England and Wales.
Changes on the horizon?
The Financial Reporting Council (FRC) looks after the UK’s largest audit firms, including the ‘big four’ – KPMG, Deloitte, EY and PriceWaterhouseCoopers.
The FRC has recently published new standards which seek to tighten regulations and all audit firms will need to have a quality management system in place. The reforms may require some of the larger firms to significantly change their structures, potentially separating out their audit and consultancy practices to maintain complete independence, impartiality, and objectivity.
Combined with this, compulsory rules for larger companies mean they must tender and change their auditor more frequently.
Shake-up in the market
These reforms are likely to mean there is a further shake-up in the market. I believe that there will be a cascade-effect for audit clients. Some of the larger firms have already said that they intend to serve fewer clients.
As clients move from the larger firms to the next tier of audit firms, it is likely that they, in turn, will push some of their clients down to smaller firms.
In addition, we have already seen some smaller audit firms exit the market as the new regulations bite – their clients will also be looking for new auditors.
A shortage of auditors
All this means that there will be fewer audit firms, but just as many companies needing an audit.
Now is the time for medium-sized businesses to have some honest conversations with their auditors about their future together. Particularly if they are using a small firm.
My advice is to ask what your auditor plans to do, keep close to them, and understand what their long-term plans are in relation to your audit. Speak to them about your ongoing relationship.
There may be businesses that have concerns about what the future looks like for their auditor. At Westcotts, we are absolutely committed to the audit market, and we value the importance of this statutory requirement.
We have a strong and growing team of experienced specialist auditors who can offer a partner-led approach to your audit. You can be assured that with their expert knowledge, we will deliver a robust, but effective audit.
For more information or to discuss your requirements for audit and assurance, contact Peter Lomax here.