by Jaffer Manek FCCA (

The increase in turnover to £1,000,000 in the UK for "Total Exemption from audit" for year-ends from 26 July 2000 is bound to have a profound effect on UK audit regulators such as ACCA (The Chartered Association of Certified Accountants).

It is questionable whether ACCA will have sufficient UK members to maintain a critical mass of audits to justify ACCA’s status as a mainstream audit regulator. How else can ACCA avoid being grouped with non-audit professional bodies such as CIMA (The Chartered Institute of Management Accountants), ICEA (The Institute of Cost & Executive Accountants), AAT (The Association of Accounting Technicians) and IFA (The Institute of Financial Accountants)?
Withdrawal of ACCA's joint sponsorship of AAT to launch ACCA's own technician qualification speaks volumes.

At the £1,000,000 turnover limit, 90% of UK companies do not even require to engage an accountant, let alone appoint a CCAB auditor (Consultative Committee of Accountancy Bodies). In 1995-96 780,000 companies filed accounts at Companies House, of which 16 % - 123,000 were dormant. The DTI's (Dept of Trade & Industry) consultative document of January 1997 estimates 32% - 250,000 companies have turnover below £90,000 while 25% - 200,000 have a turnover between £90,000 and £350,000. DTI press release states another 10% companies with turnover between £350,000 and £1,000,000 are released from the burden of a compulsory audit.

Removal of audit means removing the need for financial statements to be verified by a Registered Auditor i.e. dispense with the auditor's opinion report. All UK companies are required by Companies Act 1985 to prepare and file financial statements with Companies House, whether or not they are audited. Since the directors file the financial statements, it is their duty under the law to ensure that their company's financial statements are true and fair, whether or not they are audited.

The pressure is on to increase the UK company audit exemption turnover limit for the UK to harmonise with other major economies in the EU. The audit exemption turnover in Germany is DM 8 million (approx £2.6 million) and FF20 million (approx £2.2 million) in France. With £1 million turnover limit, UK has a long way to go. The DTI have announced they want to increase the turnover limit for audit exemption to £4.8 million. It will be interesting to see how and in what stages the UK politicians raise the audit exemption turnover limit, since UK is committed to harmonise with the rest of the EU.

To sign 90% of UK company accounts, small practitioners need not remain members of an audit regulator. So, why suffer their monitoring visits? Compulsory CPE audit seminars? Thick working paper files? Expensive annual subscription? tedious membership renewal forms? compulsory practice certificate costs? and live in fear of disciplinary hearings?

Small practitioners in UK are understandably tempted to substitute their FCCA or FCA or CA (currently audit bodies), the letters behind their name, for FCEA, FMAAT, FFA (non-audit bodies). Exemptions from examinations of non-audit accountancy bodies means no exam hurdles. The few remaining audits in the small practitioner's firm can be outsourced to a friendly specialist
auditor. Life would then become simpler for small practitioners. There can be little to lose while they can continue to practice uninterrupted and continue to serve small company clients.

Let us remind ourselves why aspiring accountancy students originally chose to join ACCA. Before the lifting of advertising restrictions in the 1980s, auditors had the edge over other types of accountants when competing for clients. Auditors were perceived as being cleverer and more capable than other accountants. Until 11 August 1994, signing company accounts was not
open to "unqualified" accountants. When these two protectionist factors were removed, the accountancy market in the UK changed radically.

ICAEW (The Institute of Chartered Accountants in England & Wales) and ICAS (The Institute of Chartered Accountants in Scotland) stayed exclusive by keeping out the "aspiring hordes". Since ACCA was the only UK audit qualification with an "open doors policy", its membership expanded fast, the money rolled in and ACCA moved up in the world from their modest Bedford
Square premises.

Self-regulation resulted in a dichotomy for ACCA because ACCA acts simultaneously as a trade association while it regulates/punishes the same members. ACCA’s machinery must have found itself at a cross-roads; either listen to the concerns of its members and work hard for them, or sweep the more arduous problems under the carpet and try to muzzle the discontent.

Sadly, experience shows ACCA auditors have always remained on the sidelines of the UK auditing arena because companies listed on the UK Stock Exchange are audited exclusively by audit firms registered with ICAEW and ICAS. Not a single quoted company is audited by audit firms regulated by ACCA!

In just the first year of audit exemption, over a thousand ICAEW small practitioner firms reportedly pulled out of auditing.

To preserve their self-regulatory role, ACCA’s disciplinary hearings became “macho”, as UK Member of Parliament Mr Austin Mitchell puts it. Disciplinary fines appear to have turned out to be a welcome source of extra revenue and power.

ACCA's officers in positions of power, other than the visible seminar staff, are not representative of ACCA's membership’s ethnic make-up. Nor are ACCA's officers had experience of working as accountancy practitioners! So, non-accountants are in charge of accountants.

ACCA's Council are criticised for self-glory, spending generously on travel with companions to exotic destinations, lavish banquets, inflated staff salaries, suave PR specialists, disasters in commercial side-ventures, advertising undone by bad press, etc. At the same time, the earnings of
accountancy small practitioners in the UK is on a steady decline. Auditing has become a "loss leader" activity in the UK. Their paperwork increases disproportionately and competition intensifies by the day. Overseas members find the rising annual subscription expensive by their local standards.

Non-practising ACCA members resent regular increases in subscriptions especially when the annual cost for BSc, MA, MBA or PhD is nil!

Too many ACCA members are dissatisfied. They dare not speak up for the fear of "having their card marked". Many of them say “But for the grace of God, there go I” (Thank God I have not been taken to task as yet!). Attending CPE seminars organised by ACCA is no immunity. Their turn to be disciplined will come sooner or later because monitoring visits and client complaints are

It will be interesting to see how the new Human Rights legislation effective as of October 2000 will temper ACCA’s apparent absolute power. After all, ACCA has no shareholders to answer to, its Royal Charter makes ACCA immune from UK courts and ACCA's proxy vote system perpetuates its archaic leadership style.

Students find themselves shepherded by colleges to ACCA courses, a lucrative source of income for the same colleges. Most students rapidly realise that ACCA's final exam pass rate is extremely low. One student was so incensed with ACCA’s exam paper marking system that he took ACCA to Court of Appeal (A Bankole v ACCA, Nov 1995).

Finalist ICEA students in Uganda told me point blank they did not aspire to the ACCA qualification as the studies are too expensive and lengthy, the pass rate is uncertain, auditing is hard work and auditing does not pay so well anyway. They do have a point.

Many countries are setting up their own national professional bodies to license their own auditors. ACCA's membership in Malaysia and Hong Kong faces uncertainty.

In California they question the wisdom of the Victorian practice of audited historic accounts when management accounts are more useful. As former Prime Minister Harold McMillan said, "The ill wind of change blows easterly" (from USA).

Members of non-audit accountancy bodies may find themselves at a greater competitive advantage in making in-roads on the client base of UK small firm auditors. In the meantime, audit exemption makes it very attractive for small firms departments of the large accountancy firms to make further in-roads in the small business market, especially as the work does not require highly skilled and therefore expensive audit staff. Franchisers from America are setting up "tax supermarkets" to capture the UK small business market for tax and consultancy work, which auditor firms have been enjoying as the traditional first port of call.

ACCA members have been asking pointed questions:

Q - Should the support of only 2% of ACCA membership be enough to continue
with ACCA's curious proxy-vote system?
Q - Why are 94% of ACCA's members too apathetic to bother to vote in ACCA
Q - Why can't ACCA members get those well paid jobs at their own
Q - Why is it that hardly any ACCA defendant wins at ACCA disciplinary
Q - How many ACCA members get replies to complaints letters to ACCA council
Q - Where is ACCA’s plan of action to cope with the impact of audit
exemption when ACCA's president Mr Foulds served on APB's (Audit Practices
Board) committee on audit exemption standards?
Q - Should the reformers of ACCA leave ACCA’s administrative machinery alone
so that it can keep shooting itself in the foot?

Perhaps the silent majority of ACCA members have got it right. When the time is right, leave ACCA and switch over to a more democratic, better managed and proactive non-CCAB accountancy body such as IFA, AIA, ICEA, AAT and CIMA. After all, clients and employers do not mind what letters the accountant has behind his/her name, or whether they call themselves
“certified” or not, as long as the accountant can deliver and their fee is competitive.

Jaffer Manek FCCA FCEA, registered auditor, practitioner, speaker and author
of audit manuals. Contact him on   + 020 8445 2223
More details on the Internet