Accountancy, Business Services, Small Business

Size re-classifications mean 7000+ small companies are exempt from audit

By Michael Blay

Due to the introduction of the EU Accounting Directive into company law, the way the government classifies companies according to their size has changed with effect from January 2016. In turn this has resulted in a change to the threshold at which companies are required to be audited.

The new company size classifications are as follows:

	Turnover	Balance sheet Total	Average no employees
Small company	Not more than £10.2m	Not more than £5.1m	Not more than 50
Small group	Not more than £10.2m net OR Not more than £12.2m gross	Not more than £5.1m net OR Not more than £6.1m gross	Not more than 50
Medium company	Not more than £36m	Not more than £18m	Not more than 250
Medium group	Not more than £36m net OR Not more than £43.2m gross	Not more than £18m net OR Not more than £21.6m gross	Not more than 250
Large company	£36m plus	£18m plus	250 plus
Large group	£36m plus net OR £43.2m plus gross	£18m plus net or £21.6m plus gross	250 plus

In response to this, a consultation reviewed the benefits of increasing the audit exception threshold to correspond with the new size thresholds. Concerns had been raised that without an increase, incidences of poor financial reporting would rise and the potential for financial crime would increase.

After much evaluation, the government decided to maintain the existing audit threshold limits and avoid introducing greater complexity into the accounting system.

Companies with accounting periods commencing on or after 1 January 2016 must have an audit if two of the following criteria are met:

Turnover of more than £10.2m
Gross assets of more than £5.1m
More than 50 employees.

The net result of these changes is to remove the need for around 7,400 companies to have an audit whereas previously they were required to do so.

Although a number of companies may now no longer have a legal obligation to be audited, there are many good reasons why it can be an advantage. If you are considering a business exit in the short to medium term it gives buyers extra confidence, helps to satisfy tender requirements when supplying larger companies and also reassures would be financial investors of reliable financial reporting.

If you have any questions about the new auditing requirements, please contact Michael Blay by emailing mb@rjp.co.uk.

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