Overview of Audit Exemption
Audit exemption refers to the provision allowing certain small companies to be exempt from the statutory audit requirement by a registered auditor. Until October 2012, small companies with a turnover exceeding £1 million or a balance sheet total exceeding £1.4 million could claim audit exemption, provided they submitted an audit exemption report. This report, created by a reporting accountant, affirmed that (i) the accounts complied with the company’s accounting records and the Companies Act, and (ii) the company qualified for the exemption based on its size. Post-October 2012, this requirement for an audit exemption report is no longer necessary.
Key Criteria for Audit Exemption
- Turnover Threshold: To qualify, the company must meet certain turnover thresholds set by law.
- Balance Sheet Total: The total assets recorded on the balance sheet should not exceed specific limits.
- Company Size: Only small companies as defined by legal statutes can avail of this exemption.
Examples of Audit Exemption
Example 1
Company A had an annual turnover of £900,000 and a balance sheet total of £1,000,000 in the fiscal year 2021. As both figures were below the prescribed limits, the company was eligible for audit exemption and did not need to undergo a statutory audit.
Example 2
Company B had turnover and balance sheet totals just under the previously stipulated thresholds but above the simplified audit exemption threshold post October 2012. Because they met the simplified audit requirements, they claimed exemption without submitting an audit exemption report.
Frequently Asked Questions
What is an audit exemption?
Audit exemption allows certain small companies to forgo the statutory requirement of an audit by a registered auditor.
Who is eligible for audit exemption?
To qualify for audit exemption, a company generally needs to be categorized as a small company, defined by thresholds for turnover and balance sheet totals under the Companies Act.
What changed in October 2012 about the audit exemption?
After October 2012, small companies no longer needed to submit an audit exemption report to claim their exemption, simplifying the process.
Why was the audit exemption report significant before 2012?
The audit exemption report verified that the financial accounts a company maintained were in accordance with statutory requirements, ensuring the company’s eligibility for the exemption.
Related Terms
Statutory Audit
A statutory audit is a legally required review of the accuracy of a company’s financial records.
Small Companies
Defined by specific criteria concerning their turnover, balance sheet totals, and employee count, these companies qualify for certain legal relaxations, including audit exemptions.
Reporting Accountant
A qualified accountant who prepares the audit exemption report, ensuring the company’s financial statements are consistent with accounting records and legal requirements.
Online References and Resources
- GOV.UK - Audit exemptions for private limited companies
- The Companies Act 2006
- Institute of Chartered Accountants in England and Wales (ICAEW) – Audit exempt companies
- ICAS - Statutory Accounts Audit.
Suggested Books for Further Studies
- “Principles of Auditing: An Introduction to International Standards on Auditing” by Rick Hayes, Philip Wallage, and Hans Gortemaker
- “Company Accounting and Financial Statements” by Martin Quinn
- “Understanding Company Law” by Alastair Hudson
Accounting Basics: “Audit Exemption” Fundamentals Quiz
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