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Small Companies May Be Freed From Mandatory Audits


A special-purpose committee recommended that a bill that would free companies from mandatory audits if their proceeds are less than 400 million rubles be discussed in the State Duma.

Market experts do not think this would make small companies any less transparent since current legislation, which requires that all companies with proceeds of 50 million rubles or more undergo an audit, only contributes to the problem of fictitious audit reports.

According to current legislation, all of the following are subject to a mandatory audit: joint stock companies, banks, insurance companies, commodity or stock markets, investment funds, state non-budgetary funds, and several other types of legal entities.

In addition, if a company’s volume from sales (for goods, work, or services) during the prior financial year exceeds 50 million rubles, or the sum of assets on the balance sheet exceeds 20 million rubles, the company is obligated to have an audit conducted. The amendments would increase these thresholds by eight times – to 400 million rubles and 160 rubles, respectively – thereby freeing many smaller companies from obligatory audits.

Auditors say that a real audit of a small business costs about 1.5 million rubles, while a fictitious audit report costs only 30-100 thousand rubles.

If the bill is passed it could hurt auditors. The audit market was one of the victims of the financial crisis – proceeds in 2009 consisted of 25.2 billion rubles, as opposed to 30.9 billion rubles in 2008, according to representatives of audit companies. If the bill is passed, audit companies could lose up to 70% of their clients and about 10-20% of sales income. Experts believe the hardest hit would be small audit companies.

Small businesses and private auditors have a more optimistic view of the proposed bill. “It’s not a bad bill,” said an independent auditor. “The companies that conduct audits because of their own in-house needs – for loans, to enter a new market – and not because they have to, will continue to use audit services.” The auditors that have the most to worry about are those who write the fictitious reports and don’t have enough qualification to conduct a real audit.

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