Audits: What You Need to Know

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Discover the power of audits—more than just rules, they’re your ticket to financial integrity. Explore UK audit requirements with us. We’re here to simplify the process and offer actionable advice for SMEs. Let’s unravel audits together, paving your path to financial stability and success.

What is an audit?

An audit is a powerful tool for ensuring financial integrity and transparency. Conducted by an independent auditor, it examines a company’s financial records, transactions, and operations. Auditors will give their opinion that financial records are true and fair, providing confidence to management and shareholders about the company’s financial position and performance.

Should a company have a financial audit?

Meeting thresholds: An audit becomes mandatory when a company can no longer take advantage of an exemption. One main reason is that a company no longer meets small company thresholds (see below).

Providing assurance: Even if thresholds are unmet, an audit offers external assurance, boosting confidence for stakeholders like lenders, suppliers and customers. It can also enhance the company’s credit rating.

Internal improvement: The audit has many benefits, such as identifying errors and weaknesses within your system and offering practical solutions for improvement. This will potentially reduce the risk of fraud and act as a deterrent.

Shareholder request: Shareholders may request an audit for transparency and confidence in financial reporting, as discussed below.

Audits: UK thresholds

A company is deemed ‘not small’ and required to have its financial statements audited if it exceeds two of the following thresholds for two consecutive years:

Turnover greater than £10.2m;
Total assets more than £5.1m;
Greater than 50 employees.

New thresholds for defining company size have been proposed, increasing turnover and total assets by 50%. This change aims to reduce complexity and lighten the burden of legislative reporting requirements. Read more at www.icaew.com.

Even a small company meeting these criteria must audit its accounts if requested by:

a member or members with at least 10% of the share capital’s nominal value,
a member with 10% of any share class, or
10% of its members in number for guarantee-limited companies.

The www.gov.uk website includes helpful information and resources on all accounts, including audit thresholds, exemptions and requirements.

At Grenfell James Audit LLP, we specialise in guiding businesses through the complexities of audit thresholds and obligations. In addition, we provide auditing services for charities.

Audits: Requirements for charities and CICs

Audit requirements differ for charities and Community Interest Companies (CICs). Charities with a gross income of £1m or less (or £500,000 or less for earlier periods) typically don’t require a full audit unless their gross assets exceed £3.26m and gross income exceeds £250,000. Instead, they usually undergo an independent examination. Meanwhile, CICs follow the exact accounting and filing rules as other companies. Still, they must attach a CIC report to their accounts when filing. This report, called CIC34, must be submitted to Companies House and match the accounts’ date.

Do UK subsidiaries need to be audited?

In the UK, subsidiary companies typically need an audit when the group exceeds the thresholds similar to the above, but the thresholds are higher when internal transactions are included.

What does an audit involve?

An independent auditor examines your business processes and tests your accounting records to ensure the financial statements are materially correct. Many people believe this process is complex and lengthy, but it doesn’t have to be that way!

At Grenfell James Audit, we understand the demands of running a business. Our goal during an audit, beyond delivering a compliant and high-quality service, is to minimise disruption for our clients. We work flexibly around their schedules, leveraging technology to streamline processes and ensure efficiency and user-friendliness.

Ready to get started? Contact us today to discuss your audit needs.