Company size and audit thresholds – is change as good as a rest?

During a recent meeting to discuss a company’s accounting and tax requirements, I was advised that the company required an audit as it had increased turnover for the last year.

Ordinarily I would have been happy to prepare a quote for the company to fulfil their statutory obligation, but in this case I felt obliged to point out that they didn’t actually need an audit!

With a clear conscience that I hadn’t mis-sold a product, I started thinking about the complexities of company size and audit thresholds. Currently, if a company qualifies as a small company under Companies Act 2006 it is usually exempt from audit (although there are exceptions for members of groups).

To qualify as a small company, it must meet 2 of the following 3 criteria:

  • Turnover below £6.5m;
  • Gross Assets below £3.26m;
  • No more than 50 employees.

However, following a new EU Accounting Directive, The Department for Business, Innovation and Skills (BIS) issued a consultation document on raising the company size thresholds. The Government’s response to this consultation was published in January this year with the result that it intends to increase the small company thresholds as follows:

  • Turnover below £10.2m;
  • Gross Assets below £5.1m;
  • No more than 50 employees.

These increases are likely to take effect for accounting periods commencing on or after 1 January 2016, based upon the draft legislation already available to view.

Whilst this may affect a large number of companies in the UK in the short term, the Government is also considering separating the audit and company size threshold, such that a company could be small, but still require an audit.

They never make it easy for us!

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