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UK Reduces Business Accounting, Reporting Requirements

by Robert Lee,, London

13 September 2012

Reduced auditing and reporting requirements could save the UK's businesses millions of pounds in annual accountancy and administration costs, the Business Secretary has said.

More than 100,000 businesses could benefit from the new rules announced by Business Secretary Vince Cable. At present, small companies must meet balance sheet and turnover thresholds to qualify for audit exemption in the UK. Cable's overhauled regulations will align mandatory audit thresholds with accounting thresholds.

This will mean that small- and medium-sized enterprises (SMEs) will be able to obtain an exemption if they meet two out of three criteria relating to balance sheet total, turnover and number of employees. According to the government, this change will allow 36,000 more companies to choose not to have an audit.

In addition, most subsidiary companies will now be exempted from mandatory audit, as long as their parent company guarantees their liabilities. This is expected to benefit 83,000 subsidiary companies. A further 67,000 dormant subsidiaries will also no longer need to prepare and file annual accounts, provided they receive a similar guarantee.

The government is also making changes to allow companies that prepare their accounts under International Financial Reporting Standards (IFRS) to move to UK Generally Accepted Accounting Principles (UK GAAP) and take advantage of reduced disclosures. The government says this will ensure that UK SMEs are not at a disadvantage compared with their European competitors.

The Business Department estimates that the new audit exemption measures will save businesses at least GBP100m (USD160m) and possibly as much as GBP390m per year. The net benefit of permitting companies more flexibility to change their accounting framework will be GBP2.4m per year, it also claims.

Cable said of the reforms: “Reporting requirements have become increasingly demanding and costly over the years. We listened to business, who made a strong case for reform, and I am delighted that we are now taking this opportunity to make audit more flexible and targeted. Tackling these problems will help save UK companies millions [of pounds] every year and free them up to expand and grow their business, which ultimately benefits the entire British economy."

The regulations are expected to come into force for accounting years ending on or after October 1, 2012.

TAGS: generally accepted accounting principles (GAAP) | business | law | accounting | audit | United Kingdom | international financial reporting standards (IFRS) | financial reporting | standards | regulation

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