Savings or risks: Raising thresholds for statutory audits


From January 1, changes which increase the thresholds for assets and revenues for the assignment of a statutory audit came into force. Many companies that have not yet concluded an agreement with auditors have the opportunity not to conduct a statutory audit for 2020.

For most companies, these changes will significantly save both the auditor services costs and the accountants’ labor costs (which are already high during the financial year closure). In addition, the costs of long debates and submission of adjusted reporting, if the company does not agree with the auditor’s opinion, are reduced, as well as the risks of a modified opinion, which in turn entail reputational costs.

The positive aspects of raising thresholds for statutory audit are obvious. What are the “pitfalls”?

Less confidence from management

In addition to compliance with legal requirements, the audit gave the company’s management certain confidence in the quality of the prepared reports and correctness of major transactions accounting. Moreover, the auditor’s comments allowed for changes in accounting and reporting before the shortcomings were discovered by the tax authorities and led to fines.

Without an independent opinion, management can only rely on the expertise of its own accounting department. To a certain extent, this reduces the management confidence in reporting and increases the risk of errors and faults.

Increased attention from the parent company’s internal controllers and auditors

Companies with foreign capital may face the problem of confirming reporting rates to the parent company’s auditors. Previously, the foreign owner received the translated auditor’s opinion which met both the internal needs and the requirements of the owner’s auditors. From now on, the owner will have to use alternative tools to confirm the reporting rates.

This can lead to numerous requests from internal and external company auditors and additional labor costs both from the Russian company and the head office. In some cases, the absence of an audit in a Russian subsidiary may negatively affect the audit results of the entire group of companies.

Loss of transparency for counterparties

An auditor’s opinion increases confidence in the reporting rates not only for internal users, but also for the company’s business partners. Often the auditor’s opinion is requested by counterparties when concluding contracts. The lack of an independent opinion on the reporting rates can make the company less attractive compared to its audited competitors.

What to do?

One of the alternatives in this situation is a proactive audit conducted by an audit company.

The second option is to replace the audit with alternative types of accounting and reporting audit checks. This option is suitable for companies more interested in obtaining not a formal audit opinion, but in identifying the existing risks and shortcomings, getting an independent opinion on the quality of reporting for internal purposes.

Want to get an independent opinion on the quality of your reporting? Contact SCHNEIDER GROUP Internal Controls Team.