Root and branch revamp of ethical standards needed says ACCA
ACCA (the Association of Chartered Certified Accountants) has called for a total revamp of the Auditing Practices Board's proposed ethics standards, which will limit the ability of accounting firms to offer both audit and non-audit advice to small business clients. The APB plans to give only a limited and temporary exemption to the smallest companies.
John Brace, ACCA President, said: "The fact that an exemptions standard has been proposed exposes the fact that the APB has failed to produce Ethical Standards that are in the public interest. The new standards impose rules designed for listed company audits onto the smallest entities - they disregard the basic principle that regulation should be proportionate and will damage small businesses, which make up the bulk of the UK economy."
The APB is proposing that only companies with turnover below £5.6m (the statutory audit threshold) can have a temporary 3-year exemption from the standards, which will effectively prevent accountants acting as a 'one-stop shop' source of advice to small businesses. This will mean the costs of audit and other professional services to SMEs will be unnecessarily increased.
ACCA has carried out a survey of its practising members on this issue. The key findings from 275 respondents across the UK are:
- 60% believe the costs to their clients will increase by between £1-3,000 per annum. 17% estimate the cost hike at between £3-4,000.
- 76% say that restricting the exemptions from the new rules to sub-£5.6m turnover companies only is not generous enough - most think they should apply to listed companies
- 94% think the APB and other standard-setters do not sufficiently consider the needs of small firms when writing their standards
- 84% said their clients below £5.6m who now have voluntary audits will just scrap them
- 73% think the APB's suggested 'modified' audits for sub-£5.6m cos are a devalued commodity, which would make it difficult for these companies to raise finance.
John Brace said: "Our survey shows that small practitioners believe that the term 'public interest' can only meaningfully apply to listed companies, not small businesses. It is worrying that, almost unanimously, they feel that the APB and other standard-setters fail to 'think small first', but instead take an outdated 'top-down' approach."
He added: "Last-minute tinkering by the APB will not be enough. An immediate root and branch review of these ethical standards are needed. They have not been aligned to the International Federation of Accountants' (IFAC) agreed standards or the European Commission's recommendation on Auditor Independence. So while UK firms will have to follow these standards, overseas network offices will be able to follow the IFAC code. This makes no sense."
One of the main features of the standards is to impose on firms an absolute 10% limit on income that can come from one client, unlike the IFAC and EC codes which consider other factors. ACCA believes that to require businesses to change auditors because they are slightly over that limit without any other evidence of a threat to independence is unnecessary, and that businesses should be able to choose the most appropriate auditors.
For more information contact:
Ian Welch , Head of Corporate Communications, ACCA
020 7396 5729/07739 862928
Notes to editors
- ACCA's warning come ahead of an APB meeting to finalise the contentious proposals on Tuesday (23 rd November).
- ACCA has just carried out a survey of 275 practising firms to gauge their views on the APB's proposals. For full details call Ian Welch .