Could new EU audit rules harm SMEs?

New EU rules could mean that small and medium-sized UK businesses are exempt from needing to submit annual audit reports, but these measures could threaten their access to potential lending sources.


The claims were made by independent finance provider Syscap, who warned that many banks often require three years of audited accounts before they are willing to lend.


For businesses that decide to opt out of submitting audits, accessing finance could therefore become a lot more difficult.


Skscap suggested that many companies would probably choose not to carry out an audit once the rules change, as it would mean they save both time and money.


Given the UK government’s attempts to cut red-tape as well, the rule changes are likely to be implemented as soon as possible.


The government has until 2015 to implement the EU directive, although it is unclear when a decision will be made.


Philip White, Chief Executive of Syscap, said the removal of regular audits could prove to be a false economy whereby banks stop lending to SMEs.


 “While moves to reduce the red tape burden on SMEs are generally a good thing, this change could have serious unintended consequences,” he said.


“It could cause severe financial difficulties even for well-run, profitable companies wanting to invest in growth and development. It may even threaten their very survival.”


As a result, this enhances the likelihood of corporate insolvency and can make it very tough for a company to continue trading.


Mr. White added that the pressures placed on banks by regulators could see a greater level of due diligence and that audited accounts would make a decision easier to make.


“A lack of audited accounts can also give some lenders an excuse to say ‘no’,” he said.


The new thresholds mean that companies with a turnover of under £10 million and a balance sheet of £5m would not need to be audited.


Previously, lower thresholds meant businesses needed a turnover of under £6.5m or a balance sheet of less than £3.26 million, while companies with less than 50 staff were also exempt.


Auditing accounts enhances their quality and provides suitable information for potential lenders and investors which could boost companies in the long term.


By Phil Smith


If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1144.

View all Business Insights