Does my company need an audit?

The Companies Act 2006 provides that companies can be exempt from audit if they qualify as a "small company".

Single, "standalone" companies

For accounting periods beginning on or after 1 January 2016, a standalone company qualifies as small if it meets two out of three of the following criteria for two consecutive years:

If there is no previous year, the size of the company is determined by the size criteria for the current year alone. Once the size of a company has been established, its status only changes where the above limits are exceeded for two consecutive years.

Ineligible companies

The audit exemption is not available if the company is ineligible - a company's financial statements must be audited if at any time in the financial year in question it was:

• a public company (unless dormant);
• a subsidiary member of a group that is not "small" (see below);
• an authorised insurer or carrying out insurance market activities;
• involved in banking or issuing e-money;
• a MiFID investment firm or an UCITS management company; or
• a corporate body and its shares have been traded on a regulated market in a European state,

Companies in a group

A company which is a member of a group may be exempt from audit where the group as a whole qualifies as "small" by reference to the thresholds detailed in the table above, and is not an ineligible group.

All members of the group are considered when applying the thresholds - not just those companies that happen to be registered in the UK.

A group is ineligible to be considered "small" if any of its members is an ineligible company, except that the inclusion of a PLC within the group will not in itself prevent the group as a whole qualifying as small provided that the PLC is not a traded company (i.e. its shares are not listed).

If the group does not qualify as small then an audit will be required for each company within the group that is not dormant, although there is an exemption for subsidiaries if they meet certain criteria and the parent provides a guarantee.

Other reasons why an audit may be required

Although a company might be exempt from an audit under the Companies Act 2006, an audit may nevertheless be commissioned for various different reasons, including:

• because it is a requirement of the articles of association;
• by request of the directors or shareholders;
• at the request of a lender or grant provider; or
• in preparation for a future sale or IPO.

Entities other than companies

Note that there are different audit requirements for charities, cooperatives and community benefit societies.

Scholes CA is a registered auditor providing statutory audits to companies and charities in the UK. We also provide a range of wider assurance and risk management services designed to help clients manage and strengthen internal financial controls within their businesses. Contact us today for assistance.