Many small companies find having to conduct an annual audit of their accounts a heavy burden to bear. However since January 2016 the rules have changed regarding the threshold at which companies are legally required to conduct an audit.
If a company meets the criteria to be considered ‘small’, it is now exempt from conducting an annual audit unless it meets certain exclusions, its articles of association require one, or an audit is requested by the shareholders.
As of January 2016 if your company meets at least two of the following criteria (and has done so for at least two years) it will not need to conduct an annual audit:
These thresholds have increased, due to the integration of an EU directive into UK law, from the previous limits of companies only being exempt if they have a turnover of less than £6.5 million and assets worth less than £3.26 million.
Even if your company meets the audit exempt criteria there are some circumstances in which an audit will still need to be legally held every year.
Your company will be legally obliged to hold an audit if at any time in the year if it has been:
Companies may also need to hold an audit for any of the other reasons below, although these are not always bound by law:
A company will require an annual audit if it is part of a larger group which would exceed the exemption thresholds, even if it would be exempt when viewed as a separate entity.
There are some circumstances in which a subsidiary company can be exempt from holding an audit which must be backed by a guarantee provided by the parent company in respect of all actual outstanding liabilities and all contingent liabilities at the end of the financial year.
The audit threshold for all charities and charitable companies is different to that that for companies. Charities can be exempt from conducting a statutory audit if they meet certain criteria, but this varies between countries within the UK:
In most cases exempt charities are required to obtain an alternative assurance service such as an independent examination of their accounts.
If your company or charity is exempt from holding a full audit you may still want to conduct an examination of your accounts to ensure they are fully complete and compliant. In this case you may still want to engage the services of an accountant to provide either an: