Falling below the audit threshold? The implications for companies, groups and subsidiaries…

Changes in group structure or eligibility can also push a company below the requirement. For example:

• If a company ceases to be part of an ineligible group for the whole year under review, for example, a group containing an investment firm or a company with listed shares, it might newly qualify for audit exemption.
• Declining turnover, reduced assets, or falling staff numbers can push a company under the threshold – even without structural changes.
• The group context matters heavily: a company might meet small-company criteria alone, but if the group is larger, the audit exemption may not apply to the subsidiary.

The shift to below-threshold status is not automatic in meaning. Before concluding you can drop audits, ask:

• Who are your stakeholders (banks, investors, lenders)? They may still want audited accounts.
• Does the group or parent expect to rely on or guarantee your figures? If so, audit comfort may still be needed.
• Are your controls and accounting systems able to support a clean transition without audit oversight?
• If you drop an audit, might you later cross the threshold again? That transition is easier if you maintain audit discipline.
• What are the long-term plans of the business? Consider if there’s a plan to sell in the future, and would a future buyer require audited accounts.

Just because the law no longer requires an audit doesn’t mean your business no longer needs one.

When a statutory audit is no longer required, the audit-specific tasks – selecting an auditor, preparing audit schedules, dealing with audit queries, and managing audit timelines – are removed. The company instead focuses on preparing, reviewing, and filing its accounts.

Key changes include:

• You still have to file accounts by the statutory deadline (typically within nine months of year end).
• For subsidiaries in a UK group, there may be an option to use a parent company guarantee under section 479A as an exemption, but this only works if the parent is UK-based.
• Without audits, internal controls and review procedures may need strengthening to ensure reliability of accounts.

If you still want some external assurance without a full audit, you can consider:

• Assurance review: a limited review providing moderate assurance. It does less testing and provides less depth than a full audit.
• Targeted reviews: focusing on specific areas (e.g. internal controls) rather than the full financial statements.

In practice, many companies either go with accounts preparation or continue with a voluntary audit. Assurance reviews are less common because many businesses see more benefit and added value in a full audit, especially where stakeholders expect a comprehensive opinion.

Stopping audits carries several risks:

• Parent guarantees / group liability: If a parent or group guarantees the subsidiary’s liabilities, the parent may be exposed unless it has confidence in the subsidiary’s financial statements. Without audit, that confidence is lower.
• Future audit complexity / cost: If you later require an audit, gaps in audited history can complicate the process. For example, if stock balances were not audited in an unaudited year, the next year’s accounts may include a qualified audit report due to impact on opening balances. That qualification can last up to three years.
• External credibility: Audited accounts provide assurance to lenders, investors, and other stakeholders. Without it, the company’s credibility can be challenged.
• Missed weaknesses: Auditors often spot control deficiencies or compliance gaps that internal teams may miss. Without that “fresh set of eyes,” risks may go undetected.

A UK subsidiary meets the small company thresholds under the new limits. However, because its parent company exceeds the medium group thresholds, the subsidiary cannot claim an audit exemption. Even though its own turnover and balance sheet are modest, the wider group position means it remains subject to audit.

A small UK subsidiary owned by a non-UK parent cannot use a parent company guarantee to avoid an audit, as this exemption is only available for UK-headed groups. In this case, even though the company qualifies as small, it must still have a statutory audit unless it chooses to restructure its group reporting arrangements.

A standalone UK company sees turnover drop below £15 million and staff numbers reduce. It now qualifies as small under the new thresholds and no longer requires a statutory audit. However, with significant lending in place, the company opts to continue with a voluntary audit to maintain credibility with its bank and provide reassurance to stakeholders.