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INTRODUCTION This study was commissioned by the Department of Trade and Industry DTI in February 2003 and supports the governments stance on evidence-based policy making The aim of the research is to investigate issues in connection with audit exemption by examining the views of the directors of private limited companies that fall within the European Community size thresholds for a small entity The main issues investigated are take-up levels of audit exemption cost savings and the factors that have a significant influence on the directors decision regarding a voluntary audit if thresholds in the UK were raised to the EC maxima At the time of the study these were turnover 8m balance sheet total 4m and number of employees 50 The research was designed as a large-scale postal questionnaire survey preceded by a small number of preliminary interviews with auditors and small company directors to develop the questionnaire The study provides evidence that size is not a sufficient measure on its own for capturing the costs and benefits of the audit There are other qualitative factors that have a significant influence on the directors decision on whether or not the accounts will be audited on a voluntary basis THE SURVEY The study is based on the analysis of 790 postal questionnaires received from a population of 2633 active independent unlisted private limited companies filing full accounts This represents a response rate of 30 The companies were selected on the basis of their 2002 accounts providing figures that showed that they had a maximum turnover of 8m maximum balance sheet total of 4m and up to 50 employees EC Maxima Standards LIMITATIONS OF THE SURVEY The selection of companies on the basis of turnover was essential as this is the key measure of size for audit exemption in the UK However it means that the sample consisted of companies filing full accounts and one limitation of the study is that companies filing short
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