What are the UK audit thresholds and exemptions?
An external audit is an independent inspection of a company’s accounts to check that they fairly represent the reality of the business. It is a thorough process which involves opening up your books to an independent accountant and being available to answer any questions.
Most small businesses do not need to have regular audits, however – here is a summary of the exemptions and thresholds which may trigger one.
Exemption thresholds to having an audit in the UK
Public companies have to be audited as part of their governance. But for private companies, there are some thresholds which, so long as they are not breached, may mean they are exempt from external audit. These have been at the same level since 1 January 2016 (prior to that, the thresholds were lower).
To have a chance of being exempt from an external audit you need to pass at least two of the following tests:
- Your annual turnover must be £10.2 million or lower
- Your assets must be worth £5.1 million or less
- You must not, on average, have more than 50 employees
We say meeting two of the criteria gives you “a chance” of being exempt from an audit because there are some other triggers which may prompt one.
What else may prompt an audit?
Your shareholders can request one – that is, shareholders who own at least 10% of the shares by number or value. This may be a group or an individual. They need to request the audit in writing at least one month before the end of the financial year which they want examined.
As well as public companies, there is a range of other types of company which require an audit regardless of their size. These are typically quite niche and include, among others, authorised insurance companies, companies involved in banking, certain investment firms, some pension-related businesses and corporate bodies which have been traded on a regulated market.
What should I do if an external audit is required?
If an audit is required, your auditors will aim to establish that your financial statements are free from material misstatement; that they have been prepared in line with the necessary legislation and accounting standards; and that the business is a going concern. It is not their job to prevent fraud or error – that responsibility still lies with the directors.
You will want the audit to run as smoothly as possible to keep the cost under control and minimise disruption to your operations. You can do this by having the necessary staff ready to answer any questions that may be asked, and submitting accurate information to the auditors within any deadlines given. Take the time to get these figures right, because if you start going backwards and forwards with numbers it will add considerably to the audit work.
Enquiries about audit
As a family-run firm working with businesses in Bristol and the South West, we love helping companies who require an audit. We can talk in further detail about what it means for you and provide expert auditing services should you wish to proceed. Get in touch today.