SMEs face surge in audit costs as auditor numbers slide

Companies could see their audit costs double over the coming years as a growing number of accountancy practices move away from the business, one of Ireland’s accountancy bodies has warned. It is calling for a review of the audit standards which must be applied to smaller businesses.

CPA Ireland says the number of accountancy practices licensed to audit in Ireland has fallen by close to 500 over the past decade. The number has fallen by 16 per cent over the past five years. The number of auditors has dipped by 12 per cent to 1,725 over the same period.

“The growing shortage of accountants, rising costs and the increasing regulatory requirements of audits have all resulted in a significant drop in the number of audit firms in Ireland in recent years,” CPA Ireland president Mark Gargan said. “This scarcity can only result in one thing, a jump in costs for businesses, which many may struggle to bear.

“SMEs who are required to have a statutory audit or who opt to as part of their governance strategy will be hit by these costs. It is entirely possible that costs will double or more for many businesses over the next few years,” Mr Gargan added.

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He warned that smaller accountancy practices – which are more likely to be involved with small and medium-sized businesses – were being hit harder by the decline in numbers.

“Large businesses are all obliged to have an annual audit so the well-known large accountancy firms will continue to offer this service. Where the pressure is becoming particularly acute is in smaller firms as they deal with the pressures imposed by the shortage of accountants. By the end of this decade, it is plausible that there will be no sole practitioners offering statutory audits any more.”

“He said the current nature of the statutory audit process, which is driven by European law and international standards and guidance, is more viable to be completed by larger firms. “Small and medium-sized accounting practices are unable to keep up with the resource requirements,” he said.

CPA Ireland is one of several accountancy bodies calling on the Irish accounting regulator – the Irish Auditing and Accounting Supervisory Body (IAASA) – to adopt a recently developed international standard that it says is more relevant to and proportionate for the audit of smaller entities.

It says the current rules were developed to ensure confidence in the audit of the most complex corporate structures. But many of those provisions are simply not relevant for small “mom and pop”-style businesses, it says.

“The International Auditing and Assurance Standards Board has developed a new framework for the auditing of “less complex entities”. It is essential that IAASA adopt this new standard as a priority. Doing so will help address the shortage, reduce business costs and also increase the number of small accountancy firms that conduct audits which can only have a positive impact.”

Precisely what elements of current audit practice will be reduced or removed under the new framework are not yet known, Mr Gargan said.