Audit burden lifted for small financial firms

The DTI has laid regulations that could save small financial services companies some £15.25m a year in total. The regulations will allow more companies to take advantage of accounting and auditing exemptions in the Companies Act 1985.

Small companies do not have to have their accounts audited, and are permitted to take advantage of less onerous accounting and reporting requirements.

However, many companies regulated by the Financial Services Authority have been prohibited from taking advantage of the small company exemptions, despite otherwise meeting the criteria to qualify as small companies.

A study by the Financial Services Authority indicated that the cost of an audit for small regulated companies outweighed the benefits. They consulted in April 2006 on a proposal to extend the audit exemption to some 4,690 small regulated companies, with the backing of the Department of Trade and Industry. There was strong support for the proposal.

As a result, the Government has concluded that the exemptions should be extended to small financial services companies, except where the audit requirement is based on a European directive.

The regulations will come into force on November 8, 2006 and will apply to financial years ending on or after December 31, 2006.

The Government has also tabled amendments to make similar changes to the Companies Bill currently before Parliament.