The audit landscape is evolving, as the Government look to improve audit quality, to prevent the collapse of large corporations as a result of auditor failings, and to promote competitiveness in the market.
Significant regulatory reform has increased standards, widened the scope of audit, and encouraged the adoption of sophisticated technology.
This all impacts the work that an auditor is required to perform, by adding to their existing workload, and we anticipate yet further challenges in the year ahead, as a result of ongoing efforts to ‘revamp’ the UK audit regime.
In many cases, against an already inflationary backdrop, an increased amount of work for auditors will mean that businesses are likely to see an increase in their audit fees.
For some larger corporations, and particularly those using the Big Four firms, this could result in millions being added on to their audit bills.
High inflation itself adds to the workload, as auditors must consider the impact of inflation throughout the business it is auditing – from risk assessment, to profit margins, internal controls, revenue and going concern.
The effects of inflation also mean that some businesses may find that they require an audit for the very first time, as they increase their prices and so, in turn, their turnover.
As it stands, to qualify for audit exemption, your company must meet two of the following criteria:
- an annual turnover of no more than £10.2 million;
- assets worth no more than £5.1 million; and,
- 50 or fewer employees on average.
Improving competitiveness of audit market
Certain proposed changes to audit legislation are intended to improve the competitiveness of the audit market and, in particular, to address the monopoly that the ‘Big Four’ has currently.
A recent policy paper released by the Financial Reporting Council points to the Government needing to press ahead with its plans for overhauling the regime and details its own ideas for driving up healthy and sustainable competition in the marketplace.
These include ensuring that there is both sufficient opportunity to compete and a sufficient pool of viable competitors, and bestowing powers on the regulator relating to operational separation in the largest audit firms – i.e., a separation of audit and non-audit services, to ensure a focus on audit quality.
Partner, Richard Dilley, comments: “As the Big Four are weighing up ‘risk and reward’ more than ever before, this creates a situation whereby large companies, with sometimes more complex audit requirements, are considering challenger firms for, perhaps, the first time.
“The sheer abundance of smaller auditing firms should mean that no single firm is burdened beyond capacity, but that there is ample opportunity for those operating in the audit market to secure new clients.
“If you’re a business within scope of audit, now could be a good time to reflect on whether you are getting true value out of your existing arrangement.”
Supporting your growth with audit and assurance
Our audit and assurance service is designed to help you grow your business whilst meeting the challenges of today’s business environment.
Regular and open communication underpins our robust approach to audit, and our objective is always to deliver reliable, quality advisory and analytical input, to give you the confidence to make changes within, and decisions about, your business.
If you are looking for auditors who will become a true extension of your own team, we would welcome the opportunity to discuss how we can support you. Contact our audit team in Hertfordshire, Bedfordshire or Cambridgeshire, today.