The Government has recently announced changes to the levels of activity at which small companies and indeed groups of companies will be exempt from the annual audit requirements. The Government estimates that this will affect a further 69,000 companies.
The headline figure quoted in the press was that companies or groups with annual turnover of £5.6m or less will be exempt. However, the exact rules can be complex and with other factors to consider I suggest that if you believe that your company may be exempt, you ask us for clarification.
However, assuming that you can in theory take advantage of the exemption, should you in fact do so? I set out below a number of reasons as to why you might not.
Annual Accounts
Whilst the requirement for audit may be removed, the requirement to prepare annual accounts in accordance with the requirements of the Companies Act 1985 and all relevant accounting standards giving a true and fair view of the results, assets and liabilities has not.
Therefore you may still require us to assist you with the preparation of statutory accounts with or without audit. In the case of many smaller companies, it is the duty to prepare statutory accounts rather than the audit requirement that is more onerous.
Other Users
Whilst there is a statutory requirement to prepare, and eventually file with the Registrar of Companies, annual accounts there may also be a number of other users who may prefer to retain an audit. These may include:
Other Shareholders
Shareholders not involved in the day to day running of the company may prefer an audit to be maintained to give them some comfort over the maintenance of their assets. Indeed, 10% or more of the shareholders can, be written request, demand an audit.
Banks and Other Lenders
Many loans and borrowing agreements include an audit requirement. In the absence of this, the practical responses by banks and other lenders to unaudited accounts is not yet certain. It is possible that banks may impose an independent review, at your expense to confirm the security of their exposure. Therefore, the maintenance of the annual audit may be an advantage.
Trade and Credit References
It may be important within your business sector for suppliers, customers and other third parties to be able to obtain audited accounts to preserve your ongoing trading relationships.
Directors/Shareholders not Involved in the Accounting Function
Directors, who may also be Shareholders, may not be involved in the day to day accounting function. Therefore, the annual audit will provide them with suitable assurance over the reported results and balance sheet.
Conclusion - The Next Step
Whilst the qualification for audit exemption may, on the face of it, look straightforward, the reality is that it can be quite complex.
As noted above, there are many factors to consider.
The best way forward is to discuss your exact circumstances with us so that the most appropriate solution is agreed.
Bob Lancefield
Business Assurance Director
T. 020 7509 9331
E. rlancefield@cvdfk.com
