UK Urged To Ease Reporting Burden

by Robert Lee, Tax-News.com, London

15 November 2011

Cutting out unnecessary 'clutter' in annual reports would help many UK businesses struggling under burdensome regulation, without devaluing the reports themselves, according to a new survey.

The study, “Proposed Audit Legislation – Good for Business or Political Posturing?”, was carried out by the accountancy, tax and business advisory group Baker Tilly as a litmus test in a climate where the Business Secretary, the Financial Reporting Council (FRC) and the European Union (EU) have all proposed changes to the UK’s audit system.

More than three quarters (78%) of those surveyed agreed that the reduction of 'clutter' in annual reports would not devalue them. In addition, a number of respondents observed that disclosures should be relevant to the size, complexity and risks of the business not a ‘one size fits all’.

The survey shows that, for many businesses, the increasingly complex accounting rules and the volume of information required are seen as the burden, rather than the audit itself. 38% said the main benefit was that an audit helps ensure good governance, while only 34% of respondents said they would like to stop having an annual audit. However, with changes to audit being discussed in the UK and Europe, respondents stated that any additional costs incurred should not outweigh the advantages.

Many were keen to ensure legislation and regulatory requirements are relevant to a company’s size. FRS17 - the standard which sets out the accounting treatment for retirement benefits such as pensions and medical care during retirement - was particularly singled out for criticism. Respondents suggested that “the pension figures turn the whole set of accounts into nonsense” and described the detailed pensions disclosures as “undecipherable even by well informed readers”.

Almost 60% of respondents thought that providing additional auditor commentary on matters significant to the users’ understanding of the audited financial statements would not be a good idea, particularly if it increased costs. Baker Tilly says the main message from respondents was that auditors should steer clear of subjective comments because the scope for inconsistency was too great and the result may be that the value of audits would decrease.

The research was collected via an anonymous survey in August and September 2011, with 219 respondents recorded in total, 76% of which were UK private limited companies. Although 42% of respondents had a turnover less than GBP6.5m (the current audit threshold), only half of these were audit exempt. Overall 77% of respondents were required to have an audit under current legislation.

Jane Bleach, Head of Audit at Baker Tilly, commented: “There are currently a number of proposals regarding audit legislation under debate in the UK and the EU. We believe there is real value in what we do, and our survey results highlight that businesses are aware that an effective audit helps rather than hinders the management of a company. However, financial reporting appears to be a far greater concern for businesses. We want to ensure that any legislation is not damaging to our clients and UK businesses generally and that is why we have written to [Business Secretary] Vince Cable’s office with the results of our survey.”

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