Getting audited isn’t as easy as you think…
Many firms of accountants have surrendered their audit licence since the new compulsory audit thresholds increased at the end of last year. However, in order to audit solicitors’ accounts, the auditing firm has to be a registered auditor. And that puts us all in a bit of a Catch-22 situation.
Here’s the rub. The turnover threshold that currently exempts most companies and limited partnerships from a statutory audit is £6.5million. This threshold means that most small to medium sized businesses don’t need or are required to perform a full-on, no-holds-barred audit. However, even small firms have to produce full statutory accounts, and so for them finding auditing services to provide them with the obligatory documentation, checks and balances is going to become harder, purely because there are fewer accountancy firms holding audit licences.
But for the legal profession, the problem is much more serious because for them, audits are not optional. They’re mandatory.
Bigger fish, smaller ponds
Auditors can now pick and choose their clients with impunity, especially those who have to perform mandatory audits on a regular basis. But do those firms who still hold an auditor’s licence want to take on smaller legal firms, or are they more interested in the bigger fish?
Because of the limited number of licensed auditors now operating (and in particular the very limited number of auditors and accountancy specialists that truly understand the nuances, complicated nature and multi-layered structure of the legal industry), concerns are now growing that fees for audits will sky-rocket. It’s the old supply and demand story – the demand for audits amongst the legal profession continues unabated, but the supply of licensed auditors has shrunk.
There’s also worry among some that delays in carrying out mandatory audits could cause problems further down the line with HMRC, if audits are not submitted on time. The workload of auditors is bound to increase, and that could easily lead to a logjam, especially during the months running up to the end of the financial year. The trouble is that the tax office in particular is not known for being overly tolerant of ‘it’s not my fault my books are in late’ type excuses, even if it genuinely isn’t your fault.
Non-compliance is not an option
Unfortunately for the profession, audit exemptions that other small businesses can call in don’t apply in the legal industry, so that audit is going to have to be carried out regardless. Non-compliance is not an option. The key is to find an accountancy firm that is a) still licensed to carry out audits and b) can take you on as a client. That could be increasingly difficult in what is a shrinking industry.