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The Financial Reporting Council (FRC) has today (3 February) launched a market study examining how effectively the audit market serves small and medium-sized enterprises (SMEs) and exploring opportunities to reduce their reporting burden where possible.
This study is the first phase of the FRC’s broader campaign to support UK SMEs to access audit services and secure the capital they need for growth.
SMEs are the backbone of the UK economy representing more than 99% of all private sector businesses with a shared turnover of around £2.75tn (52% of total UK business turnover) and employing around 16.6 million workers.
While audited accounts often play a crucial role in helping SMEs secure the capital they need to scale, creating wealth and jobs, the FRC is aware of concerns about the availability and cost of audit services for these businesses.
The study will also look at how auditing standards are interpreted and applied to this segment of the market, as well as reporting challenges which SMEs may be experiencing.
This exploratory market study will focus on the challenges faced by SMEs in relation to audit and reporting, where practitioners have difficulties in auditing SMEs, and understanding the decision-making process for SMEs who procure audit services when otherwise exempt.
Key areas the FRC’s market study will explore include:
- How the audit market is working for SMEs, including any burdens arising from reporting and audit requirements
- Market forces driving the consumption of audit services by SMEs
- Challenges which auditors experience when auditing SMEs
- Forthcoming developments which the FRC should be considering as part of the study
Miranda Craig, director of strategy and change at the FRC, said: “SMEs are at the heart of job creation and innovation in our economy. The FRC is committed to supporting their aspirations to grow and scale by examining how the audit market is working for these businesses, given their ability to access capital is often dependent on having audited accounts.
“This market study will help the FRC identify challenges which SMEs are currently experiencing, including any reporting and audit burdens, and help inform our guidance to both audit practitioners and SMEs.”
