Audit Exemption

Not all private limited companies require an audit of their annual accounts by law.

Companies that qualify as small under the law are not required to have their accounts audited annually, in the way that other companies are. These small companies are described as ‘audit exempt’.

It is important for any small company to stay abreast of the law relating to audit requirements, given that exemption thresholds do sometimes change and not all small companies are audit exempt.

Simpson Wood is registered with the Institute of Chartered Accountants in England and Wales (ICAEW) and we carry out audit work with a wide range of businesses in different sectors and industries.

Our expertise in auditing also puts us in a good position to help those who are wondering: is my company audit exempt?

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Your company may be exempt from requiring an audit under the Companies Act 2006 if:

your company has an annual turnover of no more than £10.2 million
your company’s assets are worth no more than £5.1 million
you employ an average of 50 or fewer employees.

Meeting two out of these three requirements both this year and last year qualifies your company as small under the Companies Act 2006, as long as the company was not ineligible in either year.

Charities with a gross income of £1 million or less may qualify for audit exemption unless both their gross income exceeds £250,000 and their gross assets exceed £3.26 million.

Also qualifying for exemption are subsidiary companies within a group, as long as they can meet legal criteria and provide a guarantee of liabilities through their parent company at the end of each financial year.

Companies that are not audit exempt

Companies not entitled to take advantage of audit exemption include:

Public companies, banks, insurance companies, companies regulated under the financial services legislation, trade unions and employers associations;
Certain charitable companies;
And companies where holders of not less than 10 per cent of share capital require an audit.

In addition, many small entities require reports to be prepared by registered auditors. These reports must be produced under legislation other than the main legislation governing company accounts. Such entities include:

Pension schemes;
Industrial and provident, and friendly societies;
Solicitors, chartered surveyors, estate agents and registered social landlords;
And travel agents.

The constitution of many small companies and entities, including clubs and societies, also requires an audit report.

Other reasons for an audit

There are many reasons why companies of all sizes invest in audit, regardless of the legal requirement. Your company might seek to invest in audit because:

you need to comply with banking covenants you are bound by as a result of borrowing;
to help deter and detect material fraud and error (whilst not a guarantee, the audit is a deterrent to fraud and is designed to detect fraud and errors);
to take advantage of the spin-off benefits of an audit, such as advice on the structure and operation of systems arising from the auditors’ required assessment of accounting systems and internal controls;
to facilitate the purchase and sale of business.

Our experience with clients in a vast range of industries has shown us that the regular performance of an audit provides additional comfort that underpins healthy business operations.

If you feel your company would benefit from a conversation about audit exemption, please contact us below.

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More from Audit and Accountancy

Audit and Accountancy are central to the services Simpson Wood provides.

We provide a complete range of Audit and Accountancy services to business of all sizes and structures covering a wide range of sectors.

For more information please click on the relevant service below.

We see Simpson Wood as a proactive partner that often looks for ways to improve our financial position by providing advice on tax planning opportunities.

The people at Simpson Wood take time and care to understand our needs and to provide advice in a professional way – and on a level which is easily understood. I would have no hesitation recommending this company to anyone looking for professional advice across a broad range of financial matters.

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