The DTI has now published proposals on raising the £350,000 audit threshold - and we are well ahead of the game, having reacted promptly to Stephen Byers' original announcement in June. A Web questionnaire conducted by the English ICA showed that 83% of our members are in favour of an increase, with 32% going for the maximum level of £4.2m. I have been looking back on my experience in practice up to the late 1980s and asking myself whether there was a significantly different approach by outside bodies to audited accounts of companies and unaudited accounts of unincorporated businesses. The answer is definitely not. Back then banks looked at a range of information: the quality of the management and the business, as well as the reputation of the accountancy firm producing the accounts. The Inland Revenue looked at the plausibility of the accounts and, similarly, the firm's reputation - as well as its experience in dealing with that firm. Did suppliers or customers rely on audited accounts? This was one tool, but not the most important. Were they safe relying on audited accounts? Even if audited accounts are filed quickly, the nature of many small businesses means their fortunes can change quickly. Suppliers and customers are much more likely to use trade references. I audited a very profitable computer consultancy where tangible assets were negligible because they did not need much. Cash and the profit-and-loss account were negligible because profits were distributed into pension funds and as bonuses. By accident, we found out that the company's credit rating had been greatly reduced. For tax reasons, the company had paid more pension and bonus that year. What does that say about the use of accounts for credit rating? The audit will continue to be valuable and needed by many smaller businesses, but not by all. The DTI paper concedes the audit is valuable, but seeks to find the point where the cost exceeds the benefit. Whatever the level, we must bear in mind that audits below that level will not be forbidden. - Michael Groom is vice-president of the English ICA.
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