Audit – Does My Company Require One?Written on September 14, 2017 by Kirk Rice LLP
Audit thresholds have changed recently, leaving many companies wondering if they will be required to carry out an audit. But, just because you may now be below the limit for a compulsory audit, it doesn’t mean you don’t need one, or that you wouldn’t benefit from having one.
From 1 January 2016, the audit threshold for limited companies changed as part of the EU Accounting Directive. Under the old regime, companies had to exceed two of the following, turnover of more than £6.5 million, more than 50 employees and have gross assets of more than £3.26million. Gross assets being the sum of fixed assets and current assets. If a company did not meet this criteria, they were generally categorised as a small company and therefore it was not compulsory to undergo an audit.
Since January 2016, however, the thresholds were increased, and the new limits are now as follows:
- Turnover – £10.2million or more
- Gross assets – £5.1million or more
The number of employees remains the same at more than 50.
This means that suddenly, companies who were previously required to submit an audit now find themselves in the small company category and could be lead to believe that they are no longer under any obligations. Before you make this decision, there are further considerations.
If you exceed two of the three criteria, i.e. you turnover £10.5 million and you have 60 employees, but you only have £3million in gross assets, then your accounts will still need to be audited.
Even if you are still outside of the requirements, it doesn’t mean that you do not need, or want, an audit as it might still be compulsory and there are other major benefits to having one. Small subsidiaries of groups may still have to be audited, and bank or other lenders may impose covenants requiring an audit. Being audited can help you to tender for new work and give reassurance to custers and/or suppliers, as well as any shareholders or other stakeholders.
Additionally, if you choose to have an audit, it can add credibility to your business proposition if you plan to sell in the near future.
If shareholders ask for an audit
Even if a company does not meet the above criteria, and is therefore exempt from audit in the event that shareholders who hold at least 10% of the shares ask for an audit, then the company must get the accounts audited.
The shareholders must make the request in writing and send it to the company’s registered office. The request must arrive at least one month before the end of the financial year that the audit is being asked for.
Companies that must have an audit
Your company accounts must be audited if at any time in the financial year it’s been:
- a public company (unless it’s dormant)
- a subsidiary company (although some exceptions are available)
- an authorised insurance company or carrying out insurance market activity
- involved in banking or issuing e-money
- a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
- a corporate body and its shares have been traded on a regulated market in a European state
Click here To find out more about the Audit services we offer.
If you would like more advice regarding this issue or any other tax matter, please contact one of our Audit Partners, Tim Neale on 01344 875 000 in our Ascot office or James Moody on 0208 789 8588 in our Putney office or email info@kirkrice.co.uk.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.
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