WHY Pocket-sized AND MEDIUM SIZED BUSINESSES PAY More FOR AN AUDIT COMPARED TO Large BUSINESSES

When I worked as an auditor, I saw large companies pay 10 times more small businesses in inspect fees. However, the large companies' revenue and turn a profit were 100 times higher. A closer await at public statistics from the financial supervisory authorisation and national statistics substantiated my observations.

There are several reasons for SME'southward relatively expensive inspect, and I don't arraign the auditors. Auditors work diligently for long hours to maintain trust in social club. The factors contributing to small companies paying more than in audit fees are the audit threshold, the nature and scope of a company, the quality of documentation, economies of scale, consulting vs inspect.

THESE FACTORS Bulldoze UP AUDIT COSTS
Small companies spend a college % of their profits on audit than large companies. Relatively speaking, an audit is more expensive for smaller and medium sized companies. There are some reasons to this.

Inspect THRESHOLD
This is a political question; different countries have dissimilar laws for when a modest company crosses a certain threshold and must be audited ( see list here ). Small companies that merely passed over the threshold can therefore be in a stage where the inspect cost is relatively loftier if measured in % of profits.

A Master thesis (in Norwegian) also addressed this in 2009, showing how depression acquirement companies paid disproportionally much in inspect fees compared to high-acquirement companies.  Economies of scale is a natural explanation for this. Obviously, auditors cannot and should not, work for gratis or with a loss. Audit is an of import profession, and it needs to attract expert people to practice the job – an auditor is a person that is trusted by the public.

Policies might exist difficult to change, and the threshold needs to be set at some level anyways. It seems only new technology can come up to the rescue here. Keep reading and I will propose a solution that can help both SME's and auditors.

NATURE & Telescopic
Some businesses are quicker to audit than others. Activities with high risk for misstatements in the financial statements probably demand more investigation by an auditor. However, companies can help out by providing high quality documentation.

QUALITY OF DOCUMENTATION
The quality can vary from contracts scribbled on napkins to electronical signed documents. If the documentation is in paper form, it takes longer fourth dimension to think the information, and data would be too time-consuming to extract and analyze. Scanned papers might feel like it'south digitalized and retrieval might be speedier, but if information cannot be easily extracted and verified there is still room for comeback.

ECOMOMIES OF SCALE
Reconciling a banking company account takes about the same time whether it is 10 000$ or i 000 000$. The auditor charges per hour, and smaller companies thus pay relatively more for their audit.

CONSULTING VS AUDITING
Big companies often have lucrative consulting jobs waiting for the auditors. This is a highly discussed topic . Small-scale companies might non be in the same need for consulting, thus, the audit engagement needs to be more profitable for the accountant as in that location is no additional consulting engagement to exist "rewarded with".

SO HOW Practice Nosotros COUNTER SOME OF THE FACTORS DRIVING Upward THE AUDIT FEES?
Imagine if transactions could exist easily reconciled between companies.

The double signed invoice is a solution to present high volume of high-quality documentation, readily bachelor for the audit.
Information technology works like this on a normal transaction:
i. The Buyer and
2. The Seller –
three. Both sign the underlying documentation (invoice) of the transaction on a secure shared ledger with a third-party verifying the identities.

This is called Triple-Entry Accounting .

"In dissimilarity to the classical double entry framework, BOYLE (1997) and GRIGG (2005) propose ledgers based on triple entries which provide the same reliable accounting between firms that double entry provides inside the firm ."
( Grigg, Buene, Oliverie, Simoyama. 2017 ).

Cut COSTS
Not just does it provide an external confirmation of the transaction, it is likewise readily available before the inspect. Auditors fourth dimension saved is your cost reduced.

ADDED SECURITY
Read more about how signed invoices add together security against the most mutual type of cyber-attack, still increasing.

Do you lot think the bookkeeping industry can make the work quicker and more reliable by reconciling accounting transactions between companies?

Triple Entry Bookkeeping is quick & easy to use and inexpensive.
With our Complimentary BETA-TESTING you will be able to feel how piece of cake it is to sign an invoice.

The beta-testing is at present function of the fintech sandbox of the Financial Supervisory Authorisation of Kingdom of norway. Accountants and auditors interested in blockchain technology are encouraged to contact us.

Torje Vingen Sunde, CCI
MSc in Bookkeeping & Auditing