At a roundtable event organised by the Association of Chartered Certified Accountants (ACCA), on 29 April, auditors spoke critically of the idea of increasing the audit exemption threshold across the European Union. They agreed that member states should retain control over the level for exemption and should gradually raise the threshold as per their requirements. The vast majority of European companies are not actually subject to statutory audit. Companies above the audit exemption threshold are generally medium and large-sized ones. Approximately 1.4 million audits are performed each year. The EU mandates only 0.3 million.

The audit exemption threshold varies according to member states. Some, such as Belgium and Germany, keep it close to the €8.8 million EU threshold, while others - such as Greece, Poland or Spain - keep it lower. While there was consensus on the fact that the exemption level should remain under the control of member states, all auditors present were in favour of a gradual increase of the threshold in each state. To recall, 91.8% of the firms in the EU are micro-entities, 6.9% of them count as ‘small’, 1.1% are ‘medium’ and only 0.2% are ‘large’. This means that, in principle, 98.7% of firms are exempted.

Earlier this week, Internal Market Commissioner Michel Barnier expressed the desire to launch a debate on auditing. He wishes to work towards the “reinforcement” of the supervision of audit firms at EU level. In the aftermath of the crisis, the role of auditors has been called into question. The French commissioner will also publish a green paper in the autumn on the role and governance of auditors. At present, statutory audits in the EU are regulated under the Audit Directive.

Auditors present at the roundtable were keen, however, to stress the importance of auditing. They claim the main benefits of audits are to give confidence to external stakeholders, to instil financial discipline and to ensure better corporate governance. They argue that audited firms have better access to finance. Audits can also prevent fraud and error and act as a deterrent on bribery, corruption and money laundering, they argue. In the case of large firms, these benefits have been analysed by various studies but the only study available for small companies is the Marteen Willekins survey.

Audits are often viewed as an administrative and financial burden. There is debate as to the necessity of creating a ‘light’ audit. Sara Harvey, chair of ACCA’s auditing technical committee, believes auditors should offer audits targeting only risk areas, such as cash control, instead of always conducting full audits. Overall though there was agreement that audits will remain complex procedures.

With the aim of reducing administrative burdens on businesses arising from EU legislation by 25% by 2012, the Stoiber group was set up in 2007 to advise the Commission. One of the proposals from this group is to exempt microenterprises from the need to establish annual accounts. This proposal has been backed by the European Parliament but not by the European Council. n