Cost or benefit - the problem of audit in SMEs

This chapter considers the removal of the requirement for small and medium businesses (SMEs) in many jurisdictions, and the impact that this has had on the quality of corporate reporting. By analysing data from both the UK and Scandinavia, evidence is found that the reduction in audit requirements is associated with an increase in both poor-quality corporate reporting and economic crime, while there is limited evidence for any substantial cost savings or associated economic growth. Primary evidence gathered by the author from accountants working in both practice and industry in a range of countries showed that, while the value that an audit could bring was almost universally appreciated in theory, in practice most had found that a mutual lack of understanding between auditors and SME owners reduces the value and use of an audit. The chapter concludes by making recommendations on how improvements to training and changes to auditing standards and structure specifically tailored to SMEs could improve the value of the process for auditors and SME owners alike.