February 14, 2025 Auditing SMEs
“SMEs are at the heart of job creation and innovation in our economy.”
That comment, from the Director of Strategy and Change at the Financial Reporting Council (FRC) Miranda Craig, introduced a new FRC study into the auditing and reporting challenges faced by SMEs. Acknowledging that SMEs are the ‘backbone of the UK economy,’ in launching the study the FRC has responded to concerns about the availability and cost of audits for smaller businesses and whether this may be holding back SME growth.
The 5.5 million SMEs in the private sector account for some 52% of UK turnover and employ around 16.6m workers. This has led the FRC to comment that SMEs: “play a vital role in driving economic growth across all regions and communities in the UK through innovation and job creation.” Some SMEs will be exempt from audit; whilst the majority of the rest, according to the FRC, will largely rely on smaller accountancy firms for their audit needs. And whilst the FRC doesn’t directly regulate these smaller accountancy firms, it does oversee the professional bodies to which they belong.
Carried out properly, the audit process can help directors to question and refine their future plans. As such it can be an invaluable tool in understanding and overcoming barriers to growth. In addition, the availability of audited accounts can help SMEs to secure the investments which they need in order to develop the business via the introduction of new products or expansion into new markets.
The study aims to look at the SME audit market from both the viewpoint of the SME and their potential auditors. From an SME perspective the FRC wants to better understand the challenges which SMEs experience in relation to audits; including potential difficulties in sourcing an audit firm as well as challenges in engaging with the audit process. The FRC is also curious about those firms which don’t need to be audited but still opt to do so.
On the other side of the coin the FRC would like to better understand the challenges faced by auditors when auditing SME accounts. They are also asking for suggestions on potential regulatory or policy changes which could aid the SME audit process.
The FRC intends to enhance the written consultation which closes on 25th April with meetings, roundtable discussions and external research.
In addition to offering an outsourced accounting function, accounts and bookkeeping assistance, Elemental can provide audit assistance for companies. Our online guide helps companies to identify whether they need to have a formal audit. For further information on accounting and auditing get in touch.
