Do all UK companies require an audit?

Company audits
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    Disclaimer: This article is based on legislation which was correct at time of publishing on June 21, 2024
    This page was last updated on June 21, 2024

    Audits play a crucial role in keeping your company compliant and help you showcase your financial transparency to employees, customers and external stakeholders.

    We understand it isn’t easy to know whether your company should have an audit, especially if you’re doing everything according to the book. That’s why our experts have crafted this blog to help you understand which companies require an audit and why it might be beneficial for your business.

    Most large private companies are occasionally subject to mandatory audits to ensure they follow correct financial procedures. Some public companies, UK subsidiary companies, and those in banking, insurance, investment sectors, or other financial markets may also need an audit, regardless of size.

    At Butt Miller, our expert accountants have experience providing high-quality audits to companies of various sizes. We’ll be able to provide clarity on the topic and give you a clear understanding of where your company sits when it comes to audits.

    Keep reading to learn more, or contact us today for our professional audit and assurance services.

    What is an audit?

    An audit involves an independent examination of a company’s financial statements. This may include their accounting records, an in-depth look at the systems and controls in operation, and the preparation of an auditor’s report, which presents an accurate view of the company’s activities during the year and its position at the year-end.

    An audit can only be carried out by a registered auditor, such as the professionals here at Butt Miller. It ensures an unbiased review is made and gives important stakeholders, like shareholders or potential investors, confirmation that your finances are accurate.

    What are the benefits of having a company audited?

    Having an external audit, whether exempt or not, can provide many benefits for both the company and its key stakeholders. It ensures the company maintains its essential compliance requirements and provides necessary insight into its overall financial health.

    Here are some of the key benefits of having a company audit:

    • Chance to identify weaknesses in internal control
    • Lends credibility to financial statements
    • Unbiased and expert recommendations
    • Discovers potential errors and identifies resolutions
    • Assurance for shareholders and directors

    Financial statements

    A company must produce annual accounts in a statutory format, which generally consist of an Income Statement, a Statement of Financial Position, a Directors’ Report or a Strategic Report, and accompanying notes. An audit provides peace of mind that these financial statements are accurate and reliable, making it easier for your business to approach important stakeholders.

    Filings to Companies House

    All UK companies must file a set of accounts with Companies House, which appear on public records. A small company may use the Small Companies regime and file ‘filleted accounts,’ which only include the Statement of Financial Position and the notes. All other companies must file full accounts, including the auditor’s report. A company audit will ensure you’re keeping up with your filing commitments, helping you avoid penalties.

    How do audits work?

    At Butt Miller, we always take a meticulous approach and follow some crucial steps to ensure a thorough and accurate assessment of a company’s financial reporting.

    At the start of an audit, we will have in-depth discussions with our clients to fully understand their business and its operations. We will then prepare a planning memorandum, setting out the audit approach, the responsibilities of all parties involved and the feedback process. This ensures we have the information we need to provide an efficient and seamless audit service – giving our clients plenty of notice to gather the relevant information.

    During the audit, we will examine specific transactions and financial records in great detail to ensure they are in line with regulatory standards. This involves testing specific transactions and analysing any unexpected patterns that could indicate errors or potential fraud. In addition to these tests, we will hold discussions with the management team and take time to understand the provisions the company has set aside for potential liabilities or losses.

    Our audits are comprehensive. We will also review data entries and any financial adjustments to ensure they are legitimate, assess accounting estimates and investigate any significant transactions that appear unusual to understand the business rationale.

    By the end of an audit, you should have a clear picture of your company’s financial position, giving you the knowledge and reports you need to make informed decisions.

    What companies are obligated to get an audit?

    Some companies are subject to mandatory audits due to their size or industry.

    This includes companies that, at any time in the financial year, have been one of the following:

    • Classed as a non-small company
    • Public company
    • Subsidiary company (unless it qualifies for an exemption)
    • Insurance, banking or investment company (or issuing e-money)
    • Involved in specific financial markets (such as MiFID investment firm or UCITS management company)

    UK audit requirements can be quite complicated, and this list may vary for certain businesses. A complete audit exemption list can be found on the Gov website.

    If you’re unsure whether your company requires a mandatory audit, contact us, and we’ll advise you.

    What is an audit exemption?

    All UK companies registered at Companies House could potentially require an audit unless they are exempt, in which case they will not be expected to have their financial statements verified.

    As a rule, small standalone companies can qualify for the small company exemption from audit. However, if the company is a UK parent company, an investment firm or part of a worldwide group, it may still need to be audited.

    A small company is determined by the following:

    • Turnover of £10.2 million or less
    • Gross assets of £5.1 million or less
    • 50 employees or less

    Even if your company fits the criteria for an exemption, if shareholders own at least 10% of shares and request an audit, you must comply. However, they will need to make an official request so you’ll have time to prepare.

    How can Butt Miller assist?

    If your company has recently experienced significant growth or you’re planning to embark on a new business opportunity, then an audit may be the right course of action to ensure you make the most informed decisions.

    At Butt Miller, we are an independent firm of qualified and experienced auditors. We take pride in delivering a service that not only meets clients’ expectations and tight deadlines but also ensures they get the results they are looking for.

    Our audit and assurance services are designed to relieve you of the stress and hassle a mandatory audit brings. With the support of our specialist team, you’ll be able to continue running your business with clarity and confidence.

    Unsure whether your company is exempt from audit? Get in touch with Butt Miller today, and we’ll be able to help you understand your obligations and answer any questions you may have.

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