Higher auditing costs set to hit private companies hardest

Less is more, they say ­ and where international auditing standards are concerned, the phrase has an extra irony.

New standards designed to bring ‘clarity’ to international auditing standards ­ or ISAs ­ are set to cost companies more. That, at least, is the view of the head of the UK’s accounting regulator in the UK, the Financial Reporting Council chief executive Paul Boyle.

According to Boyle, the new ISAs have more detailed requirements than the present standards.

‘As a result of that, the likelihood is that audit costs will go up to some degree. At the top end of the market it may be bearable, but not at the private end of the market.

‘The pressure to improve ISAs has come primarily from people interested in the audit of listed companies, and listed companies typically have lots more money,’ he said. ‘What’s acceptable to BP may not be acceptable to private companies.’

The new standards, from the US-based International Auditing and Assurance Standards Board, are meant to help implementation of the standards with more consistency and so increase the quality of assurance.

The threat of more burdensome audit regulations will be tiresome for companies still bedding down international financial reporting standards and other regulations.

The difficulties for private companies will also raise questions over whether audit standards should be the same for both private and public companies.

The chairman of the IAASB John Kellas has, understandably, taken issue with Boyle’s comments.

Kellas said that any complaints over increased requirements raise questions over how the current standards are being interpreted.

‘When one considers those who raise the issue of requirements pushing up costs, the question that arises is how the standard was previously interpreted,’ said Kellas.

‘Auditors already interpret the standards with some guidance, but now we’re making clear what we expect to be done, so as to also make practice more consistent.’

He also sought to reassure the profession that the project would not be subject to further revision.

But many seem sceptical of reviews like the IAASB’s in general.

John Pierce, chief executive of the Quoted Companies Alliance, said: ‘When you get used to one set of regulations, another lot come along, doing something different, rather than better.’

The ISAs are due to be finalised this year, with the date for implementation falling to accounts for financial years beginning after 15 December.

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