The financial reporting environment is going through considerable changes caused by changing government legislation and the most significant change to accounting standards in many years. The impact of this needs careful consideration to ensure that organisations take the right actions.
Accounting Standard changes
Accounting standards are currently going through the most significant changes in years (with the transition to Financial Reporting Standards 100, 101, 102 and 105) and the effects of this will impact organisations of all sizes. As a result of this directors, trustees and owners need to ensure that they are aware of the adjustments required and that they have taken steps to ensure that the records that they are keeping are adequate for this purpose. An audit can provide comfort that this process has been managed effectively and insight into improving the overall performance of an organisation.
Simultaneously, the UK is bringing audit thresholds into line with European legislation, resulting in an increase in audit thresholds that may tempt some directors to opt out of having an audit. However, before contemplating this, a number of factors should be considered to ensure that organisations are able to do this, including whether an alternative assurance engagement would be more suitable to their needs.
Some organisations are required to have a statutory audit under their Articles of Association or equivalent documents and management should check whether this is the case before proceeding with discussions relating to the removal of audit engagements.
Banks and external account users
A number of high profile banks have already stated that they prefer their clients to have audited financial statements and in many circumstances they require delivery of independently audited financial statements in order to provide or renew lending facilities to their clients. Therefore management should consider contacting their bank in order to avoid these issues.
Management also need to consider the impact of removing an audit report from the financial statements. Trading partners (suppliers and customers) and owners take assurance from the existence of an audit report and the removal of this could have a detrimental impact on several areas, such as credit terms or owner satisfaction.
If there is potential for the removal of an audit engagement but still a desire to obtain some level of assurance over all, or a specific part, of the financial statements, an assurance engagement may be the answer. An assurance engagement will provide a lower level of assurance than a full statutory audit but can be tailored to a business’ particular needs and will result in an assurance report that can be provided to users of the accounts upon request, which can help in avoiding some of the above mentioned issues.
At Thomas Westcott we have specialists in all areas of statutory audit and assurance engagements and are happy to discuss any of these matters with you to help you to make the right decision.
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