An investigation into the audit exemption and developments in the auditing sector

Abstract

With the audit exemption thresholds rising in 2006, this poses the question whether it will have impact on the auditing sector. Presently there is a lot of interest in this area, with the Institute of Chartered Accountants in England and Wales (ICAEW) in the United Kingdom (UK) launching a consultation exercise on the impact the audit exemption has had on their auditing sector. While the United States (US) has gone under major restructuring to its auditing sector, due to the income from auditing diminishing and the profession had to alter its products.

Therefore, this research explores the development of the audit exemption, and the evolution and progression of the auditing sector. The purpose of this research is to determine why the audit exemption was established and to investigate its impact on the auditing industry. It also investigates if the auditing sector has developed alternatives services that could be provided to the public. The researcher did an extensive literature search on the area audit exemption and sent questionnaires the top twenty accounting firms. The researcher also interviewed the three Irish accounting bodies to discover their views on the area.

The literature shows there is a shift in the activities being performed by auditors internationally. Professional bodies have responded to the changing environment by updating the professional practices framework and expanding the skills and knowledge required to provide assurance in the future. The research has found that more than 50 percent of respondents felt an impact from the recent rise in audit thresholds, with 40 percent of respondents revenue decreasing and 50 percent saying it had decreased the number of audits performed by them. This research has also identified a clear gap for providing alternative services to the audit, such as assurance services, with 90 percent of respondents feeling they could be provided in Ireland. However, the demand for the services was highlighted as a concern by the accounting bodies. In conclusion, the top twenty accounting bodies have felt an impact by the recent rise in the audit exemption thresholds, and this research has identified potential alternative services.