FSA Mulls Ending Audit Requirement For Small Firms

by Robin Pilgrim, LawAndTax-News.com, London

10 April 2006

The UK's Financial Services Authority (FSA) on Friday issued a consultation paper outlining proposals to remove the statutory audit requirements under the Companies Act for small firms and Appointed Representatives (ARs).

Under the Companies Act 1985, certain categories of small companies cannot benefit from an otherwise general audit exemption; one of those categories is small companies that are authorised by the FSA.

The FSA estimates that, if introduced, this would save 3,200 small firms and 1,490 ARs GBP12.9m each year. Most of the firms that benefit are likely to be financial advisers.

The average cost of a statutory audit for a small firm or an AR is estimated to be between GBP2,150 and GBP3,370. Using an average audit cost of GBP2,760, this will produce savings of GBP8.9m for small firms and GBP4m for ARs.

The proposal is backed by the Department of Trade and Industry (DTI). If the consultation meets with support, the FSA and DTI will take the necessary steps to implement the changes in companies legislation and the FSA Handbook.

The consultation period will run for two months from 7 April.

Stephen Bland, Director of Small Firms at the FSA, explained that:

"We are committed to better regulation. Small limited liability companies currently compete with sole traders and partnerships which are not subject to audit. We are working with the DTI to produce a level playing field for these small firms which should promote competition and thus bring benefits to consumers."

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