Audit costs are set to rise dramatically, FRC warns

Private companies are about to suffer a hike in audit costs, at a time when economic uncertainty and the credit crunch make them more vulnerable.

The bad news comes from the UK's financial reporting watchdog, which warned that newly revised audit standards emerging from the US will add complexity to regulation and increase the price of audits for private companies.

Paul Boyle, chief executive of the Financial Reporting Council said: 'What's acceptable to BP may not be acceptable to private companies.'

He made the comments in relation to international auditing standards emerging from the 'clarity' project of the US-based International Auditing and Assurance Standards Board, which aims to revise standards and reduce complexity.

Audits are obligatory for companies with a turnover above £5.6m.

But Boyle warned that the new ISAs have more detailed requirements than the present standards. 'As a result of that, the likelihood is that audit costs will go up to some degree. At the top end of the market it may be bearable, but not at the private end of the market.

'The pressure to improve ISAs has come primarily from people interested in the audit of listed companies, and listed companies typically have lots more money,' said Boyle.

In the UK, a single set of audit standards is applied to public and private companies. 'The question that will increasingly be debated going forward is whether this is a sustainable solution,' said Boyle.

But he added that standards differ depending on a company's size and levels of public interest.

'Questions are going to arise as to whether we can have a single set of auditing standards to apply to companies of all sizes and all levels of public interest,' said Boyle.

John Pierce, chief executive of the smaller quoted companies group, Quoted Companies Alliance, said he anticipated added complexity from the ISA review.

'What you do find is reviews end up making life more difficult. When you get used to one set of regulations, another lot come along, doing something different rather than better,' said Pierce.