New audit exemption options for small companies and subsidiaries

The government has recently announced changes to company law that allow many companies and limited liability partnerships more choice in deciding whether to have a statutory audit.  The changes apply to financial years’ ending on or after 1 October 2012. 

Who is affected?

• Companies and groups that previously qualified as ‘small’ (turnover less than or equal to £6.5m; B/S total assets less than or equal to £3.26m or employees less than or equal to 50) under company law but were not exempt from audit because of their turnover or balance sheet total; and
•  Subsidiary companies that previously required an audit.

What has changed?

• Align audit thresholds with small company thresholds, meaning that virtually all companies and groups that qualify as small can choose whether they wish to have an audit or not; and
• Allow qualifying parent companies and their subsidiaries to decide whether or not to have a subsidiary audit, regardless of its size.  Instead, parent companies can opt to provide a statutory guarantee over the subsidiary’s liabilities.  Dormant subsidiaries are also exempt from the requirement to prepare and file accounts, subject to the provision of a similar guarantee.

What to consider:

• Are there any legal or commercial reasons why an audit is needed? Will the credit rating be affected? Will potential customers request to see the audited accounts?

• When deciding whether or not to utilise audit exemption, one of the most important factors for the parent company to consider, is the requirement to provide an unlimited guarantee of all of the subsidiary company’s liabilities.  If a group has been structured in a way to effectively ring fence the liabilities of subsidiaries, then one will most probably not want to lift the corporate veil for the sake of an audit fee.

How can we help?

These changes have removed the legal requirement to have a statutory audit from many ‘small’ companies, as a result Ward Williams can provide you with a more flexible service. 

Contact: enquiries@wardwilliams.co.uk