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The Financial Reporting Council (FRC) has launched a consultation on guidance aimed at helping auditors deliver more proportionate audits, having published emerging findings from a market study on how effectively the audit market serves SMEs.
The guidance and interim findings are part of a year-long FRC campaign to help SMEs access audit services and reduce reporting burdens where possible. The SME audit market comprises about 2,000 firms carrying out more than 70,000 statutory and non-statutory audits annually, generating fees of around £1.5bn.
The study, which involved more than 500 stakeholders including SMEs, capital providers, auditors and professional bodies, identified several challenges facing the sector. These include a perceived lack of scalability in auditing standards for smaller businesses, concerns among smaller audit firms that regulators expect unnecessary work, mixed impacts from technology adoption, and constraints on knowledge and resources that may reduce efficiency.
Miranda Craig, director of strategy and change at the FRC, said: “SMEs are vital to our economy, employing around 16.5 million people and driving innovation across the UK. Access to audit often helps these businesses secure the capital they need to grow and succeed.
“We’ve listened carefully to stakeholders across the audit market and are supporting the system to take immediate action to address their concerns. Our Practice Note consultation launched today will help auditors apply standards more proportionately, while our work with supervisory bodies will ensure more consistent regulation.”
The FRC has agreed with recognised supervisory bodies to work together to achieve a more consistent and proportionate regulatory approach across the statutory sector. It also plans to convene stakeholders to develop technological solutions tailored for smaller audit firms.
Paul Wilson, policy director at the Federation of Small Businesses, welcomed the proposals, saying they “make a number of sensible and practical suggestions to bear down on regulatory costs for SMEs”.
He said: “Small businesses have a tendency to over-comply when they are unsure how rules should be interpreted, so extra guidance on what compliance could look like should avoid wasted time and help cut costs.”
Martin Clapson, chairman of the Managing Partner Association, which represents 20 professional service firms, added: “Ensuring these businesses, many of which are owner managed and entrepreneurial, benefit from an audit regime that is proportionate and scalable, will help enable them to remain competitive and support their long-term sustainable growth.”
