The importance of auditing in SMEs

Impacts and risks of removing mandatory auditing

For several years, the debate over whether audit thresholds should be increased has gained momentum, which could exempt many SMEs from auditing their financial statements. In addition, there are proposals to remove the requirement for certain companies to file their annual accounts with the Commercial Registry, under the idea of reducing administrative burdens. However, this measure has consequences that go beyond a simple cost reduction.

Although this proposal may seem to simplify business management, Accountancy Europe—an organization representing more than one million auditors and financial professionals across 37 countries—highlights the need to carefully assess its implications. Countries such as Switzerland and Denmark, which have already experimented with relaxing audit rules, provide practical examples of negative effects, such as an increase in accounting errors and business failures.

Risks and consequences of exempting SMEs from auditing

• More accounting errors: The lack of an audit reduces confidence in SMEs’ financial information, affecting relationships with investors, banks, and suppliers.
• Difficulties accessing finance: Without trusted financial data, SMEs face greater obstacles in obtaining funding, limiting their growth.
• Higher risk of insolvency and bankruptcy: Reduced oversight makes it harder to weather economic downturns, increasing business liquidations.
• Impact on tax revenue: The absence of audits can facilitate questionable tax practices, affecting public revenue.
• Increase in corruption and fraud: Audits help prevent economic crimes, including money laundering and terrorist financing.

Learning from international experiences

In Switzerland, where mandatory audit thresholds were increased in 2010, a study conducted in 2017 revealed significant negative effects, including a higher incidence of risky practices among SMEs. Denmark, after increasing thresholds three times between 2013 and 2016, is assessing similar impacts.

Audits in SMEs provide essential value that goes beyond compliance for shareholders: they foster transparency, increase market confidence, and strengthen the business ecosystem. Regulatory decisions should prioritize creating an environment that enables SMEs to grow sustainably and face future crises.