Over a number of years, there has been a general EU-wide movement to reduce the amount of red tape for small businesses by aligning across regulatory bodies the audit exemption thresholds that determine the size of a business.
In January 2016 the UK Government defined a business as ‘small’ it must meet two of the following three criteria:- Total assets: < £5.1m
- Turnover: < £10.2m
- Fewer than 50 employees
Any audit exemption benefits can only take effect for accounting periods from 1st January 2016.
Similarly in Ireland, a company is defined as small if it satisfies two of three conditions:- Balance sheet total: < €4.4m
- Turnover: < €8.8m
- Fewer than 50 employees
The rules for Ireland came into force in 2014 and state that if the annual accounts are filed late, this company loses its right to an audit exemption, not only for the year in question, but for the following year too.
With this alignment of thresholds and audit exemption benefit for smaller companies, auditors face a challenging road ahead as the demand for audits is set to decrease further.
As a result, the market is contracting more and more, with 304 practices having dropped their audit licences since December 2014, according to the UK’s accounting profession report, highlighting a decline from 9,950 firms in 2004 to 6,331 today.
So what can auditors do to become leaders of the pack, in an environment that is becoming increasingly competitive and ‘pitch-focused’?
As prospective clients increasingly ask auditors to pitch for potential work, auditors need to consider streamlining processes to ensure efficiency when completing audits, while ensuring a cost advantage over competitors. Investment in technology and software has a huge part to play in helping auditors tackle this issue.
Any time saved in the audit process is incredibly valuable to help keep within the project budget, but this cannot come at the expense of quality. Auditing software provides a built-in prescribed methodology, which means that the quality of work may be much higher than those derived from paper-based documents. These internal controls also ensure a rigorous risk focussed audit so clients can feel confident in signing off the file, reducing exposure for both parties.
Current developments within the audit software market include high-level visualisation, which can interpret the initial data and present visual representations of the intricate relationships in the audit file. With tech taking on the hard work, audit firms can spend less time poring over spreadsheets.
A final benefit of visualisation tools is that auditors can offer more value by drawing high level conclusions and highlighting key elements from the software’s ‘deep-dive’ of the file.
This can change the relationship between the auditor and the client as, rather than simply checking credit and debits, auditors can move into a consultancy-based role, advising on business management, risk control and fraud protection.
Auditors can also look to expand internationally by completing audits remotely, as modern cloud-based software ensures that clients can share documents and sign off audits securely.
So, with the right tools, auditors can remain cost competitive against other companies and evolve their offering by expanding into new markets as trusted consultants.