Audit exemption in Europe - Assignment

Added on - Dec 2020

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AUDITING
Table of Contents1 Audit exemption in the European Union..............................................................................12 Arguments in favour and against regarding audit exemption for small companies...............33 If the audit exemption threshold continue to increase.............................................................6REFERENCES................................................................................................................................8
1 Audit exemption in the European UnionThe European Union had achieved the benefit of audit exemption for small companies. Inorder to motivate the directors of small or private companies made voluntarily demand auditassurance after analysing the sufficiency of turnover of the small or private company. No doubtthat the small functions are the backbone of European economy because its a main source ofIdeas, Innovations, Entrepreneurial skills, inventions and also its a main source of newEmployment creation for Large companies. The expansion of micro, small and medium sizedbusinesses increases from the recession of 1980's, since that time there is huge increment innumber of employments or opportunities for the new employees, not only this it was thebeginning of sole proprietorship and partnership businesses.(Caramanis, 1999)Accordance with the fourth Company Law Directive, article 51 all limited companies arerequired to have annual account audited, but article 11 the option to exempt small companies.small company is one that for two consecutive years does not exceed any two of three sizethresholds. The term 'thresholds' are subject to periodic revision by the European commission forthe indexation purposes.(Francis, 1984) Although, this act ensures the small, medium sizedcompanies and limited liability partnership qualified for the audit exemption, are not explicitlyrequired to have an audit but the member states can impose an audit on small companies, auditmust regarding to appropriate for conditions and needs of these companies and the users of theiraccounts. Several acts of European parliament and and council regarding the auditing and itsterms or regulations, states that Public interest entities(companies which are traded ton regulatedmarket, credit and insurance institutions etc) and medium sized and large companies, periodicaudit of accounts is mandatory for these companies because they operates at large scale andtraded with other nations also so that is why to avoiding fraud it is necessary or mandatory (madeby European parliament) for them to have periodic auditing. For small undertakings aremandatory required to have periodic audit and recital 43 of Accounting Directive defines thatthis was the intention.Article 3(2) of the Accounting Directive defines small undertakings, imposed someregulations regarding balance total limit is 400000€, net turner limit is 800000€ of particularaccounting period, and average number of employees limit is 50 during the accounting year,must not exceeds the limits. But member states are permitted to increase the thresholds, the1
limits can be increase up to in context of balance sheet total exceed limit is 600000€ , and netturnover limit is 1200000€ of particular period of time.For example, since many year in UK all the limited organisations, no matter of size, wererequired to make independent audit. Auditing of annual accounts is crucial as theannual accounts determines the completeness, accuracy and validity of transactions of business,when complete make up the financial statements. Although, the auditregulation ensures the difficulties of attempting to enforce one set of rules regarding theauditing of medium and large companies prevailing in a widelydiverse market. In 1994 this state ofuniversality was changed when provisions permitted under EU law to exempt smallcompanies from the statutory periodic audit were first adopted in the UK. United Kingdom isone of the country that recently adopted the EU maxima for determining a small company for thepurpose of audit exemption. Overall, now in UK also it is benefit for micro and smallcompanies, as they free from the periodic auditing of accounts.2
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