Audit thresholds have changed recently, leaving many companies wondering if they will be required to carry out an audit. But, just because you may now be below the limit for a compulsory audit, it doesn’t mean you don’t need one, or that you wouldn’t benefit from having one.
From 1 January 2016, the audit threshold for limited companies changed as part of the EU Accounting Directive. Under the old regime, companies had to exceed two of the following, turnover of more than £6.5 million, more than 50 employees and have gross assets of more than £3.26million. Gross assets being the sum of fixed assets and current assets. If a company did not meet this criteria, they were generally categorised as a small company and therefore it was not compulsory to undergo an audit.
Since January 2016, however, the thresholds were increased, and the new limits are now as follows:
- Turnover – £10.2million or more
- Gross assets – £5.1million or more
The number of employees remains the same at more than 50.
This means that suddenly, companies who were previously required to submit an audit now find themselves in the small company category and could be lead to believe that they are no longer under any obligations. Before you make this decision there are further considerations.
If you exceed two of the three criteria, i.e. you turnover £10.5 million and you have 60 employees, but you only have £3million in gross assets, then you will still meet the requirements for an audit.
Even if you are still outside of the requirements, it doesn’t mean that you do not need, or want, an audit as it might still be compulsory and there are other major benefits to having one. Small subsidiaries of groups may still have to be audited and bank or other lenders may impose covenants requiring an audit. Being audited can help you to tender for new work and give reassurance to customers and/or suppliers, as well as any shareholders or other stakeholders.
Additionally, if you choose to have an audit, it can add credibility to your business proposition if you plan to sell in the near future.
It is possible to have some of the benefits of an audit without paying for a full voluntary audit. There’s a limited assurance review, which isn’t as detailed as a full audit and gives a lower level of assurance, but can still be shared with third parties.
An agreed upon procedures review is another option which can be requested by management to focus on a particular part of the business, perhaps a high risk process or an area vulnerable to fraud or error. This kind of review is only for internal purposes but can provide valuable reassurance for management.
If you would like some further information about auditing for your business, contact Wilkins Kennedy to see how we can help.