Audit threshold changes

I am fascinated recently by the furore surrounding UK Government proposals intended to cut SME red tape and costs by pushing up the threshold that requires formal auditing of annual financial results.

I can see the arguments but would not necessarily agree this will hinder the recovery or is a totally regressive step.

To those that use business information to determine risk, the lack of filing or auditing means less of a rating and suggestively, a greater decline in credit granting. In other words, the traditional data compilation that determined the constitution of the rating and risk guide on business reports would be weakened through absence of filing or audit requirement. This is undoubtedly a problem but not insurmountable. A further argument is that a lack of audit will lead to greater propensity of fraud and falsification of financial results.

A lack of filing or auditing does not alter the fact Directors of limited liability companies are required to produce and retain financial statements for their own review, performance, taxation, as well as for other reasons; indeed, sole-traders or partnerships do so as well. In other countries, such as the USA for example, financials are private. This does not prevent the granting of credit, it merely prompts the demand for such information from the applicant directly or alternative means of calculating risk. There may be risk in terms of falsification or misinterpretation of results when not audited but quite frankly, I have come across so many in the past that were audited and yet still suspect and questionable. SME’s in general can’t afford fees charged by the big boys and often resort to small local accountancy and auditing firms where the annual fee is ‘bread and butter’ income. The result of course is just a quick run through of accounts with little questioning or challenge.

Have we all forgotten how to pick up a phone or indeed visit a customer and obtain what we want? Have we forgotten the art of financial data review and analysis? Have we all lost the ability to re-work score-cards or demand business information providers are more innovative in their data farming?

 It’s time we started talking to our customers again and there are so many ways in which to do this.