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Understanding Statutory Audit Requirements for UK Companies

June 28, 2023

As a business grows, it may reach a point where a statutory audit becomes necessary. This audit is a legal obligation that must be conducted by an independent and qualified auditor. Its purpose is to provide an opinion on whether a company’s financial statements are free from errors or material misstatements. 

Who Needs a Statutory Audit? 

In the UK, the Companies Act 2006 outlines the eligibility criteria for a statutory audit. A company requires a statutory audit if it meets any two of the following criteria: 

  • Turnover of more than £10.2 million 
  • Balance sheet total of more than £5.1 million 
  • More than 50 employees 

While some UK companies are exempt from the audit due to not breaching these thresholds, certain UK subsidiaries of foreign parent companies may still require an audit. This is because the parent company may need an audit for consolidation purposes or due to legal or regulatory requirements in their own country. In such cases, it’s crucial for the company to seek professional assistance to ensure compliance with all necessary audit and reporting requirements. 

Exemptions 

However, even if exempt from the audit, companies still need to prepare financial statements. It’s essential to seek the assistance of a qualified accountant to ensure these statements are done properly. 

Internal Audit vs. Statutory Audit 

While sounding similar, they differ in some key ways. An internal audit is conducted by a company’s own employees to identify potential risks and areas for improvement. A statutory audit, on the other hand, is carried out by a qualified independent auditor and provides an opinion on whether financial statements are free from material misstatement. A statutory audit is required by law, while an internal audit is not. 

Choosing an Auditor

An auditor must be a member of a recognised supervisory body, such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA). Additionally, it’s beneficial to choose an auditor with experience working with companies of similar size, complexity, and industry as the company being audited. 

UK companies need to be aware of statutory audit requirements and exemptions. Compliance with these regulations is crucial to avoid legal issues and maintain financial accuracy. It’s essential to seek professional assistance to ensure compliance and proper financial statement preparation.

To find out more about how we can help, speak to Chris Howitt, our audit expert at chris@hentons.com. 

Chris Howitt

As a Partner and Responsible Individual (RI), Chris is part of the Hentons Senior Leadership Team and also heads up our Leeds Audit and Small and Medium-Sized Enterprise (SME) teams.

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