In 2016, the 2013 EU Accounting Directive changed audit thresholds for limited companies. While these thresholds have been in place for some years now, they can sometimes still be confusing to gauge. As specialist auditors, Williamson & Croft are here to demystify these thresholds.
Let’s break down when you might be exempt from having an audit in simple terms.
When are companies exempt from having an audit?
A company is exempt from being audited if they qualify as a ‘small company’ as defined by part 15, chapter 4, section 3 of the Companies Act 2006. They must qualify for 2 out of 3 criteria for two years in a row.
These audit exemption criteria are:
Turnover – Turnover of less than £10.2 million net, or £12.2 million gross
Total assets – Total assets of less than £5.1 million net, or £6.1 million gross
Number of employees – Employing less than 50 employees
However, there are situations in which the audit exemption doesn’t apply even if you meet 2 out of 3 of the above criteria.
The regulations specify that a company is ineligible for audit exemption if, during the last financial year, it falls under any of the following categories:
- A publicly traded company (unless it’s in a dormant state – refer to the dormant accounts section of the company accounts guidance)
- A subsidiary firm (unless qualifying for an exemption – consult the subsidiary company section of the company accounts guidance)
- An authorised insurer
- Engaged in insurance market activities
- Operating in the banking sector
- An issuer of electronic money (e-money)
- A firm covered under the Markets in Financial Instruments Directive (MiFID) for investments
- A management company for Undertakings for Collective Investment in Transferable Securities (UCITS)
- A corporate entity with shares traded on a regulated market exchange
- A financial backer of a master trust pensions scheme
- A body listed on a special register
- An organisation involved in pensions or labour relations matters
When are groups and subsidiaries exempt from having an audit?
A group has to meet all 3 of the turnover, total assets and employee criteria. If the group does not qualify as a small group, an audit will have to be undertaken for each member of the group.
Some exemptions are available for subsidiaries under sections 479A to 479C when they meet specific criteria.
Under the old rules, a PLC in the group would make the entire group ineligible but under the new 2016 directive, a PLC will only make that company and group ineligible if the PLC is also a traded company (i.e. being listed on LSE).
When are co-operatives and community benefit societies exempt from having an audit?
The audit thresholds for co-operatives and community benefit societies were not increased in 2016, with the 2013 EU Accounting Directive. However, they were increased in 2018.
The Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2018 increased the audit thresholds.
Turnover – Turnover of less than £10 million net (where it was previously £5.6 million net)
Total assets – Total assets of less than £5.1 million (where it was previously £2.8 million)
Number of employees – Employing less than 50 employees (whereas before there was no limit)
Companies that fall below 2 of the 3 criteria for the new reduced thresholds are able to submit an accountant’s report rather than having a full professional audit.
When are charities exempt from having an audit?
The audit thresholds for charities differ depending on whether the charity is registered in England, Wales or Northern Ireland.
A charity in England can choose to opt out of a full audit if:
- Annual gross income is below £1 million
However, most charities are still required to obtain an independent examination or other alternative assurance service, as per their governing documents, if gross annual income is between £25,000 and £1 million
Need an accountant you can trust to help you get your accounts audit-ready? Contact our team of expert tax accountants at Williamson & Croft today.