Small Companies Audit Exemption Thresholds:Written statement - HLWS479

Department for Business, Innovation and Skills
Made on: 26 January 2016
Made by: Baroness Neville-Rolfe (Parliamentary Under Secretary of State for Business, Innovation and Skills)

Small Companies Audit Exemption Thresholds

The Government has carefully considered responses to questions posed on the audit exemption threshold in the Government’s discussion paper on the implementation of the Audit Directive (2014/56/EU) and the Audit Regulation (Regulation 537/2014). Some stakeholders argued that amending the audit exemption threshold increases the risk of poor financial reporting and that the thresholds should be maintained at the previous level or raised to some intermediate level lower than the thresholds now used to determine a “small company” for financial reporting purposes. Others argued for the thresholds rising to the maximum permitted, quoting the erosion of the value of the audit exemption thresholds due to inflationary effects and the need to avoid imposing avoidable regulation on small companies. Moreover removing the link between the thresholds for eligibility for the small company regime and those for the audit exemption would introduce unnecessary complexity into company law and cause confusion for users.

The Government has concluded that, as now, all companies should continue to be able to have an audit. Companies will not however be required to have an audit for the financial years commencing on or after 1 January 2016 if at their balance sheet date they satisfy at least two of the three following criteria, in general for two consecutive financial years:

Turnover ≤ £10.2m

Balance sheet total ≤ £ 5.1m

Number of employees ≤ 50

and they are not otherwise excluded from accessing the audit exemption, for example due to the nature of their business.

Audit and auditors will continue to have an important role in supporting small businesses to achieve their ambitions and grow; and in providing assurance to owners and lenders about a company’s performance. Although it is estimated that raising the audit exemption thresholds will bring a further 7,400 companies within scope of the exemption, on current practice the Government anticipates that 4,400 will choose to continue to have an external audit. Of the 3,000 companies expected additionally to take up the exemption, some will seek alternative routes to ensure that the company’s systems are robust; for example, through assurance reviews or increased oversight of accounts preparation.

In view of the news expressed by stakeholders the Government will keep the changes in the audit exemption thresholds under review. We will respond quickly should evidence emerge that further action is required to ensure that the UK continues to have a world-class financial reporting and assurance framework which meets the needs of users and regulators.

This statement has also been made in the House of Commons: HCWS491

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