Why do I need an audit?

To qualify as a “small” company, and therefore potentially be exempt from audit, a business must meet at least two of the following three criteria:

• Annual turnover of no more than £15 million
• Balance sheet total of no more than £7.5 million
• 50 or fewer employees on average

Previously, the thresholds were:

• Annual turnover of no more than £10.2 million
• Balance sheet total of no more than £5.1 million
• 50 or fewer employees on average

The thresholds for micro and medium-sized companies have also increased.

The increase in size thresholds is expected to bring a greater number of entities within the scope of the small and micro-entity regimes. As a result, qualifying businesses may take advantage of simplified financial reporting frameworks, including reduced disclosure requirements under the relevant statutory regimes. In addition, entities may newly meet the criteria for audit and, where applicable, consolidation exemptions, providing an opportunity to streamline compliance obligations and reduce reporting burden where this was not previously available.

Some entities, such as PLCs and certain regulated businesses, are still required to have an audit regardless of size. In addition, group structures and subsidiary relationships can affect eligibility. A company may qualify as small on a standalone basis but still require an audit because it forms part of a larger group that exceeds the relevant thresholds.

Despite the increase in audit exemption thresholds, there remain a number of reasons why an audit can benefit your business.

In addition to identifying material errors or irregularities within the business, an independent and robust audit can provide practical recommendations to help improve processes and controls. It can also provide assurance to management and enhance credibility with lenders, investors, and other stakeholders regarding your company’s financial performance.

Understanding where your business stands today is an important first step in developing an effective strategic plan and supporting future growth.

If your business is expanding, an audit can also help you prepare for the possibility of exceeding the exemption thresholds in future years, avoiding the need to revisit prior year figures once an audit becomes mandatory.

Where you are planning to exit or sell your business, audited financial statements can enhance the credibility of the information provided to prospective purchasers.

Whatever your business objectives, you need to be able to rely on the financial information used to make decisions. We conduct audits and internal assurance reviews across a wide range of organisations, including pension schemes, charities, academy trusts, local authorities, and law firms. The scope can range from broad reviews across multiple functions to detailed assessments of specific financial areas.

As audit thresholds increase, you may find that an assurance review of your financial statements is more appropriate for your business than a full statutory audit. This type of engagement provides a lower level of assurance than a full audit but can be tailored to your organisation’s specific requirements.