Audit exemptions offered to UK companies

As part of its bid to reduce red tape, the UK government has provided certain UK businesses with an exemption from a statutory annual audit. 

Small companies will no longer need to file, assuming the company has no more than 50 employees; no more than £3.26 million ($5.26 million; €4 million) on their balance sheet; and less than £6.5 million in turnover. Also exempt are most UK subsidiary companies and dormant subsidiaries, so long as their parent company guarantees their liabilities. 

Private equity firms looking to secure debt financing however may want their portfolio companies to undergo an audit regardless of an available exemption, said CMS Cameron McKenna lawyer Peter Bateman. “Banks may require an independent audit as a condition for lending”. 

The UK government estimates some 100,000 UK businesses to be eligible for the exemption, saving at least £100 million in accounting costs, and as much as £390 million per year thereafter. 

In a related reform the government made it easier for certain companies to switch between UK GAAP and International Financial Reporting Standards (IFRS) when preparing their accounts. 

The measures take effect this week, and apply to financial years ending on or after 1 October.  

In an earlier statement on the reforms, UK business secretary Vince Cable noted: “reporting requirements have become increasingly demanding and costly over the years. We listened to business, who made a strong case for reform, and I am delighted that we are now taking this opportunity to make audit more flexible and targeted.”