The Financial Reporting Council (FRC)
has today published emerging findings from
its market study examining how effectively the audit market
serves small and medium-sized enterprises (SMEs) and has launched
a consultation on new
guidance to help auditors deliver more proportionate
audits of these businesses.
This guidance and the emerging
findings report are part of the FRC's year-long campaign to help
SMEs access audit services and reduce reporting burdens where
possible.
The SME audit market is substantial,
with around 2,000 firms undertaking over 70,000 statutory and
non-statutory audits annually, generating fees of approximately
£1.5 billion. While the FRC found that most SMEs can currently
find audit services when needed, the study identified several
challenges that could impact market
effectiveness.
The emerging findings – produced
following engagement with more than 500 stakeholders including
SMEs, capital providers, auditors and professional bodies –
include:
Actions taken by the
FRC
The FRC is already engaging the whole
UK audit ecosystem to take action in response to these findings.
Alongside the interim report, the FRC has launched a consultation
on a Practice Note providing guidance for auditors on applying
standards in a more proportionate and effective way for SME
audits.
The FRC has also agreed with
Recognised Supervisory Bodies (RSBs) to work together to ensure a
more consistent and proportionate regulatory approach across the
statutory sector.
Additionally, the FRC will convene
stakeholders to explore and develop technological solutions
tailored for smaller audit firms.
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.”
Paul Wilson, Policy Director
at the Federation of Small
Businesses, said:
“The FRC's report makes a number
of sensible and practical suggestions to bear down on regulatory
costs for SMEs, which will provide multiple benefits to small
firms themselves and to the overall economy when
implemented.
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. The
proposals should reduce audit red tape and streamline processes,
while still ensuring useful outcomes from the audit process for
small firms, investors, and
regulators.”
Martin Clapson,
Chairman of the APA, a Managing Partner Association of 20 leading
professional service firms,
said:
“SMEs form a vital
part of the real economy driving jobs and growth across the whole
of the UK, so this Market Study is a welcome piece of analysis
which provides valuable perspectives on the needs of these
important businesses which we fully
support.
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.”
The FRC is now
starting the second phase of its market study, where it will
continue engaging with stakeholders to develop practical
solutions that create an audit market that serves the needs of
SMEs.
Read the emerging findings
report.
Read the Exposure Draft for the Practice Note for
audits of smaller and/or less complex
entities and
the invitation to
comment.
Explore the emerging findings at a glance with this
summary.
