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Spotlight on… When is an audit required and what are the options for UK companies?

This month

Nick Winters takes a practical look at what you need to know about audit, audit exemption, and other options and provides an overview of the rules as well as certain practical considerations.

Why is it relevant?

UK companies, including subsidiaries of overseas groups, must comply with UK audit requirements. We have seen several recent examples of directors not having a full understanding of what is required, leading to filing and compliance deadlines being missed. The impact of this can be late filing fees, prosecution of the company and its directors, and issues with credit referencing.

It is therefore important to have an awareness of the rules well in advance so that preparation of financial statements, and audit, if necessary, can be planned accordingly.

Who does it affect?

The rules apply to all UK companies, with the directors of those companies taking responsibility for ensuring that their obligations are met.

What do you need to know?

While the rules may appear straightforward at first, they are quite complex, so taking advice at an early stage is recommended.

Firstly, UK limited companies are subject to an external audit if they have at least two of the following:

  • Turnover of more than £10.2m
  • Balance sheet total of more than £5.1m
  • Number of employees more than 50

In addition, the following companies must have an audit:

  • a public company (unless it’s dormant)
  • a subsidiary company (unless it qualifies for an exemption)
  • an authorised insurance company
  • those carrying out insurance market activity
  • those involved in banking
  • an issuer of electronic money (e-money)
  • a Markets in Financial Instruments Directive (MiFID) investment firm
  • an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
  • when a corporate body and its shares have been traded on a regulated market
  • a funder of a master trust pensions scheme
  • a special register body
  • a pensions or labour relations body

Even if your company is usually exempt from an audit, you must get your accounts audited if shareholders who own at least 10% of the shares ask you to. For a UK parent or subsidiary company to be exempt from audit, both the company and the group must be considered.

Secondly, the company’s size is assessed as an individual company based on its individual turnover, balance sheet total, and employees, using the criteria shown above.

The size of its group must then be considered because a company can only qualify as a small company if its group also qualifies as a small group. This criteria relates to the group and all its subsidiaries, wherever located. In assessing the size of the group against the thresholds, the group may use either the net or gross thresholds where applicable.

What are the options if the company is exempt?

Preparing and filing unaudited accounts will usually be the least costly option. Otherwise, you can choose to have an audit voluntarily. This could increase the quality of financial information and have a positive effect on the company’s credit rating score. It may also be appropriate if you know that the company will breach the limits in the following year, making you better prepared for that year’s audit.

You can also carry out a limited assurance review which would mean a review of all material items in the financial statements. Financial statements may contain material misstatements or be non-compliant, so consider and make enquiries about factors which might lead to increased risk.

An assurance review is another flexible and proportionate service which can be adapted to suit your needs. It retains some structure and can be a cost-effective way to work towards an audit in the following year.

What should you do next?

As early as possible, consider how these requirements and choices fit your company profile and plan your financial reporting appropriately. Take early advice as necessary so that you can prepare. And if you’re not sure whether you need to undertake an audit, get in touch.

Contact us

If you would like to discuss the above matter or to confirm how this impacts your company, please get in touch with your usual Blick Rothenberg contact or Nick Winters using the form below.


Contact Nick

Nick Winters
Nick Winters
Partner, Head of Technology
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