FRC announces measures to support small business growth

The Financial Reporting Council (FRC) has announced a package of measures to make audits more efficient for small and medium-sized enterprises, in a bid to support economic growth.

The regulator, which intends to ensure audits are proportionate for smaller, less complex businesses, will publish new guidance to help auditors apply standards relative to the size of a firm.

A technology sandbox will be developed within the innovation and improvement hub. This facility will allow smaller audit firms to receive support when adopting artificial intelligence to improve audit quality.

The FRC plans to establish a working group with recognised supervisory bodies, with the aim to promote consistency in how audits for small and medium-sized enterprises (SMEs) are supervised.

The measures follow a market study involving 500 stakeholders, including capital providers and auditors, which showed that nearly nine in 10 SME audits are delivered by firms outside the largest UK providers.

While findings indicate that most SMEs consider audit fees to represent good value, the study found that some regulatory requirements can lead to more work being done than is necessary.

Richard Moriarty, chief executive of the FRC, said: “We’ve been looking closely at how we can reduce complexity and make sure regulation remains proportionate for UK businesses. As regulators, it’s important that we challenge ourselves on where we might be creating unnecessary burdens on businesses and take steps to ease them.

“SMEs are a vital engine of innovation and growth in the UK, creating jobs and opportunities across the country. It’s important that the audit market supports them and helps them access the capital they need to grow.”

Maggie McGheem, executive director of strategy and governance at ACCA, said: “The UK SME audit market is of critical importance and small businesses deserve a reporting and audit regime that is fit for purpose. The FRC’s conclusion that overall, the market is functioning well is positive news, but we know there is room for improvement.”

Paul Wilson, policy director at the Federation of Small Businesses, added: “When we are all seeking ways to boost growth, it’s important to keep the small business front of mind and ensure audits are proportionate to a firm’s size and complexity. Small firms have a tendency to gold-plate their compliance if they are uncertain about how regulators will interpret rules.”