The Financial Services Authority is in discussions to remove the requirement on small intermediary firms to audit their accounts, in line with other small companies.
Under current Companies House auditing rules, small companies with a turnover of less than £5.6m or a total balance sheet of £2.8m or less in any one year are exempt from the requirement to submit – although this figure can reduce down to £1m depending on the company type – providing they have an average of 50 employees or less.
That exemption does not apply to financial services firms, however, as the Companies Act 1985 states firms supervised under part IV regulations of the Financial Services and Markets Act 2000 must have their accounts audited.
During a question and answer session at the FSA’s public meeting last week, chairman Callum McCarthy said the City watchdog has been in discussions with the Office of Fair Trading to find out whether it is possible to allow smaller intermediaries to be exempt from the requirement to have their accounts audited, as part of their move to try and reduce the regulatory burden on small companies.
This is part of a part of a project beginning in August, says McCarthy, to “lighten the load” and cost of regulation on smaller firms.
Since the introduction of mortgage and general insurance regulations, the group of part IV firms has grown substantially, yet it is a requirement which even the Financial Services Authority does not believe should stand, say industry sources.
Section 249a of the Companies Act 1985 sets circumstances under which firms are exempt from appointing an auditor while Section 249b1 lays out the conditions under which these exemptions are not available.
It is this clause which stipulates financial firms with Part IV supervision - ie financial intermediaries - are not exempt from the auditing requirement, even though most companies would be classified as small investment intermediary firms.
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