Planning for proposed audit exemption threshold increases
With inflation over the years meaning that many more companies now require an audit, proposals have been put forward to increase small company accounting and audit size thresholds later this year. Despite these proposals being drawn up by the previous Government, it is expected that these will still proceed under the new Government.
These proposals, alongside others relating to streamlining company narrative reporting requirements and wider changes to UK Accounting Standards, will present a number of implications and decisions for businesses to make in the coming months and years.
For businesses seeking to take advantage of any newly available exemption from audit, careful consideration and planning will be needed before making a decision due to either the benefits of opting to continue with an annual audit, or the alternatives offered through other forms of targeted assurance or investment in accounting and business advice in relation to future growth, scale, succession and exit plans.
The expected increase in audit thresholds
In March, the Department for Business and Trade proposed a 50% increase to the turnover and asset thresholds used for small company accounting and audit exemptions, with an expected effective date of accounting periods commencing on or after 1 October 2024 (to be confirmed). This will move the small companies turnover threshold from £10.2 million to £15.0 million, for example, with the gross assets threshold moving from £5.1 million to £7.5 million (the employee numbers threshold is expected to remain constant at 50).
Whilst there are still complexities around companies that are part of a group and the interaction with other financial thresholds and other eligibility rules, a significant number of companies are expected to become eligible for audit exemption as a result of these changes.
Some sectors, for example charities, are subject to different thresholds that are also expected to increase in time, though we do not yet have visibility on when or by how much.
Benefits of a voluntary audit
Many businesses continue to see value in voluntary audit regardless of legal exemptions and so it shouldn’t be the case that an audit is disregarded for those who will fall out of the legal requirement. Some of the benefits of a voluntary audit include:
- Providing accounts transparency and confidence for lenders, shareholders and investors
- Corporate governance insight – e.g., board performance and internal controls
- Helping to organise finances ahead of a possible future requirement for a statutory audit
- Where planning to sell or exit, an audit can provide an in-depth financial picture of the business for prospective buyers
- Providing insight and evidence on where possible financial issues are arising and supporting with efforts to tackle
- Fraud risk management
A voluntary audit can provide advantages, but it’s not suitable in every instance and should be fully considered before deciding whether to go down this route.
Targeted assurance and investment in growth
We are increasingly working with business owners and leaders that are looking at their business risks and assurance needs and working with us to design procedures that provide assurance services to meet those needs. This can encompass a number of approaches, including:
- An assurance review engagement - Whilst similar in concept to an audit, the level of assurance provided is “limited” rather than “reasonable” meaning that some assurance is provided, but not to the same extent, or cost, of a full audit.
- Agreed-upon-procedures - This is common where, for example, a business does not see the benefit in a full audit, but does want independent verification of some areas – for example checking stock counting procedures or the application of specific business processes or controls.
- Internal audit - Our risk assurance and technology expert team can work with business leadership to provide a range of risk-focused services, from targeted assurance over critical systems to full internal audit services led by recognised internal audit and business assurance specialists.
We also work with a number of business owners and leaders that have invested savings from audit exemption in strategic business support – including tax efficient modelling, cashflow forecasting and plant & machinery investment. Given the recent general election and the short term uncertainty which follows, it could also be beneficial to reinvest potential savings in optimising your tax position ahead of any changes that could be made to tax policies in a post-election budget – whenever that may take place.
We are here to help
If you’re unsure how the threshold changes will impact your business, we would recommend that you attend one of our forthcoming client webinars. If you would like to discuss your specific circumstances in more detail in relation to undertaking a voluntary audit, other risk assurance services or reviewing implications of wider changes to financial reporting to your reporting or tax position, please get in touch with your usual Azets advisor or a member of our specialist team.