Increase in Audit Thresholds
After several months of uncertainty, the government has finally concluded that audit thresholds should remain tied to company size thresholds for accounting periods beginning on or after 1 January 2016. This means that a company not in a group is audit-exempt if it qualifies on 2 out of 3 of the following:
- Turnover – not more than £10.2 million per annum
- Gross assets – not more than £5.1 million as at the balance sheet date
- Employees – not more than 50 on average (employment contracts in place, not full-time equivalent workers).
This must also be met for 2 consecutive years to qualify for exemption. There is no explicit guidance for groups at present, but assuming these too remain pegged to revised company thresholds, then turnover and gross assets would each be 20% higher without adjustment for intercompany transactions and balances.
Whilst we welcome the relative simplicity of the new regime – a company is small and unaudited, or not small and audited – this does mean there is potentially an incentive for companies close to the thresholds to stay under these, both to avoid the cost of an audit and also to maintain reduced filing requirements with Companies House. It also means that there could be some vast companies who qualify as small and hence will not require an audit, which could mean much greater business risks for those companies.
Further, the increase means that some smaller audit firms might be left with only a handful of companies requiring an audit, meaning that they may no longer retain the skills needed to perform these audits; in that respect these regulations are effectively driving some firms out of the audit market, and any company audited by such a firm might need to re-evaluate their options.
Of course, companies can elect to continue having a voluntary audit, or alternatively have assurance work done on their financial statements. G+E are experts in this area and can offer a full range of options to suit all sizes of companies, being large enough to have the necessary expertise but small enough to be personal.