2021 has seen an increase in enquiries for audits from businesses who previously never imagined requiring such a service. Through exceptional growth during the lockdown, to the impact of Brexit, a large number of business owners are due to experience their first-ever taste of a formal statutory audit.
The thresholds for audit requirement were last amended in 2016 to:
• £10.2m turnover;
• £5.1m gross assets (fixed assets, current assets and non current assets); and,
• 50 employees.
A Company must exceed at least two of these thresholds, for two consecutive years, before a statutory audit is then legally required. It is worth understanding that this is written into Law, within the Companies Act, and failure for the Directors to comply is a criminal offence. Whilst in 2016 these thresholds may have been aspirational for many business owners, various sectors have seen exponential growth of late and may well have exceeded these in the last 12 months.
An audit doesn’t have to be a painful experience, but good forward planning is essential to ensure a successful outcome and in most cases, the earlier planning the better. It is important to understand in basic terms, that we as auditors must verify, using audit techniques and technologies, each financial component of a set of accounts for both the current and in most cases, the previous two years. Whilst many figures can be agreed upon after a year-end date has passed, some elements can not – verification of stock held is one example where we must attend a physical stock count at a specific date. Failure for auditors to gain sufficient evidence will likely result in a qualified audit opinion which could be looked on adversely by banks or other creditors.
Another overlooked change to the audit requirement rules has come about since the completion of Brexit in early 2021. Here, UK resident subsidiaries of EU Parent companies can no longer claim audit exemption via a parental guarantee passed by the European parent company.
Our advice for those Companies who have, or are due to exceed, two of the above three thresholds, is to start to plan for an audit in advance of the first year-end this happens. Even if an audit may not be legally required until the second year, it would be worth talking to an auditor and perhaps even having them independently review previous accounts files, and/or visit a stock count in that first year, should you be concerned about a qualified audit opinion.
To discuss your own situation contact Eimear Brown, Head of Audit Tel: 028 9032 3466 Email: eimearbrown@bakertillymm.co.uk