Directors View On Exemption Audit. Essay

826 words - 3 pages

INTRODUCTIONThis study was commissioned by the Department of Trade and Industry (DTI) in February 2003 and supports the government's stance on evidence-based policy making. The aim of the research is to investigate issues in connection with audit exemption by examining the views of the directors of private limited companies that fall within the European Community size thresholds for a small entity. The main issues investigated are take-up levels of audit exemption, cost savings and the factors that have a significant influence on the directors' decision regarding a voluntary audit if thresholds in the UK were raised to the EC maxima. At the time of the study these were turnover £4.8m, balance sheet total £2.4m and number of employees 50.The research was designed as a large-scale postal questionnaire survey, preceded by a small number of preliminary interviews with auditors and small company directors to develop the questionnaire.The study provides evidence that size is not a sufficient measure on its own for capturing the costs and benefits of the audit. There are other qualitative factors that have a significant influence on the directors' decision on whether or not the accounts will be audited on a voluntary basis.THE SURVEYThe study is based on the analysis of 790 postal questionnaires received from a population of 2,633 active, independent, unlisted, private limited companies filing full accounts. This represents a response rate of 30%. The companies were selected on the basis of their 2002 accounts providing figures that showed that they had a maximum turnover of £4.8m, maximum balance sheet total of £2.4m and up to 50 employees. (EC Maxima Standards)LIMITATIONS OF THE SURVEYThe selection of companies on the basis of turnover was essential, as this is the key measure of size for audit exemption in the UK. However, it means that the sample consisted of companies filing full accounts and one limitation of the study is that companies filing short accounts were not consulted.THE SAMPLE COMPANIESIn 94% of cases the questionnaire was answered by the principal director, finance director or company secretary. The position and educational profile of the respondents suggested they would have both tacit and formal knowledge with which to answer the questions and weigh up the costs and benefits of the audit when making the audit decision.THE RESULTS OF THE SURVEYAlthough 31% employ a qualified accountant in a financial role in the business, it would appear that accounts preparation is usually outsourced, as in 85% of companies an external accountant prepares...

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