TT48: Audit Exemption
Are you exempt from the requirement to have an audit?
If your company’s financial year ends on or after 30 March 2004 increased audit exemption thresholds come into effect.
The new thresholds are in line with the new small company limits. To qualify, a company must be a small company and have a turnover of not more than £5.6 million and gross assets (fixed assets plus current assets) of not more than £2.8 million. For companies that are part of a group, there is an additional requirement that the group qualifies as a small group and has a total turnover of not more £6.72 million and total gross assets of not more than £3.36 million.
The annual cost savings of not having an audit average between £1,200 and £1,500.
So why should exempt companies have an audit?
Despite the superficial cost saving there are many important reasons a small company might choose to continue having an audit. Here are seven:
- Banking and other finance facilities: Not having audited accounts could lead to problems obtaining bank borrowing and other finance facilities such as hire purchase. Once facilities have been granted, it may also be a requirement that audited accounts are presented to the bank or other institution annually.
- Credit references: A company without audited accounts may have difficulty obtaining goods from suppliers who use credit reference agencies or insure their debts.
- Tenders: Potential customers inviting tenders for large contracts may well require audited accounts from prospective bidders.
- Sale of business: Clearly if accounts are audited a buyer will place more reliance on these and the seller may find it easier to sell the business and/or obtain a better price. Also, information may be available as a result of the audit which could make the selling process quicker and cheaper than if no audit had taken place.
- Fraud: The audit can be an important deterrent to protect the company from fraud and can provide guidance on areas of weakness where fraud may occur.
- Advice: Information may come to light that allows important advice to be given to the company and directors, particularly in relation to taxation matters.
- Credibility: Audited accounts will be viewed as being more credible by users of the accounts.
Barnes Roffe Topical Tips
- Remember, directors still have a duty to prepare statutory accounts, which must comply with accounting standards, and to file these at Companies House. Currently the majority of rejected accounts are unaudited.
- Look at the seven reasons given to continue with an audit and decide how many apply to you.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.Talk to Barnes Roffe today