A new study by Baker Tilly today revealed that more than three quarters (78%) of businesses believe that reducing ‘clutter’ in annual reports would not devalue them. The Baker Tilly 2011 survey – “Proposed Audit Legislation – Good for Business or Political Posturing?” was conducted as a litmus test in a climate where Vince Cable, the Financial Reporting Council (FRC) and the European Union have all proposed changes to the UK’s audit system. The results have been shared with Vince Cable, the FRC and the UK Commissioner for Brussels.
For many businesses the increasingly complex accounting rules and the volume of information required are seen as the burden, rather than the audit itself. Only a third (34%) of respondents said they would like to stop having an annual audit but many commented that they were keen to ensure legislation and regulatory requirements are relevant to a company’s size. FRS17 was particularly singled out for criticism, with respondents suggesting that “the pension figures turn the whole set of accounts into nonsense” and describing the detailed pensions disclosures as “undecipherable even by well informed readers”.
Jane Bleach, Head of Audit at Baker Tilly, comments: “There are currently a number of proposals regarding audit legislation under debate in the UK and the EU. We believe there is real value in what we do, and our survey results highlight that businesses are aware that an effective audit helps rather than hinders the management of a company. However, financial reporting appears to be a far greater concern for businesses. We want to ensure that any legislation is not damaging to our clients and UK businesses generally and that is why we have written to Vince Cable’s office with the results of our survey.”
A summary of the key results from the research include:
Thumbs up for Audit
* Only 34% of businesses which currently have an audit would like to eliminate the perceived ‘audit burden’
* 38% said the main benefit was that an audit helps ensure good governance
Auditor Commentary
* Almost 60% of respondents thought that providing additional auditor commentary on matters significant to the users’ understanding of the audited financial statements would not be a good idea, in particular if it increased costs.
* The main message from respondents was that auditors should steer clear of subjective comments because the scope for inconsistency was too great and the result may be that the value of audits would decrease.
Thumbs down for excessive financial reporting requirements
* 78% did not believe that reducing the clutter in annual reports would devalue them; in fact one respondent felt it would increase their value.
* A number of respondents observed that disclosures should be relevant to the size, complexity and risks of the business not a ‘one size fits all’.
Keep Costs Low
* Many businesses commented that legislation should be relevant to a company’s size.
* With changes to audit being discussed in the UK and Europe respondents stated that any additional costs incurred should not outweigh the advantages.
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