Over the years, we have seen continued increases in audit thresholds which has removed many smaller businesses from the requirement to have a statutory audit. As a reminder, the general guidelines are that two or more criteria has to apply for an audit to be effective for two consecutive years for year ends commencing on or after 1 January 2016:
- Turnover > £10.2m
- Gross Assets > £5.1m
- Employees > 50
Having attended a recent audit update course, it was shocking to hear that 17% of clients still have an audit as “they were not aware that they were exempt”. This is an indicator that the firms undertaking the audit have not notified their clients that an exemption applies, or they are not up to date with reporting requirements. Both worrying positions.
Other than the reason above, what other benefits are there for small businesses retaining their audit status?
Firstly, external users of the accounts may feel more comfortable with the validity of the results and the business owner may believe that this adds credibility and improved reputation. Another interested party would include bankers or finance providers where significant borrowings are in place or being obtained. It is likely that these external users would look to gain additional comfort on the year end figures from having audited results.
Where a company is looking for external investors or grooming for a future sale, an audit can add value to the process. As part of a due diligence process, many external parties put greater emphasis on audited results rather than from standard accounts prepared without.
An area often overlooked that is a middle ground between accounts preparation and a full audit is an Accountants Assurance Report. This can be materially cheaper than a full audit and can concentrate specifically on the key areas of the business that will be of most use to external users. These are often referred to as the high risk areas associated to the company.
This should be of particular interest for Clubs and Associations where old constitutions still contain the requirements for an audit but an Assurance Report can be provided with minimal effort by the Club to change by a EGM. This means that areas such as income and cash could have more focused testing than under the standard audit regime.
Overall, however, a business or club has to consider the cost v benefit of having an audit and this may not always be the best choice for a company.
Please contact one of the Audit Partners if you are concerned about the audit criteria or if you are a member of a Club looking to reduce costs with a more appropriate Accountants report.