When do you require an audit?

Introduction:

In the UK, audited financial statements are required under certain circumstances, usually based on the size and legal status of a company. The requirements for audited financial statements are primarily governed by the Companies Act 2006 and the regulations set by the Financial Reporting Council (FRC).

Below are the general circumstances when audited financial statements are required:

1. Public Companies: Public limited companies (PLCs) in the UK are required to have their financial statements audited regardless of their size.

2. Size over the audit threshold: In the UK, a company generally requires an audit if it meets two or more of the following criteria:

   • Turnover exceeding £10.2 million

   • Balance sheet total exceeding £5.1 million

   • Employees exceeding 50

3. Subsidiaries and Groups: Subsidiary companies might be exempt from audit requirements if they are part of a group, provided that the group as a whole qualifies for an audit exemption and prepares consolidated accounts.

4. Specific Regulatory Requirements: Certain industries or sectors might have specific regulations that mandate audit requirements regardless of the company's size. For instance, financial institutions like banks and insurance companies usually have stricter auditing requirements due to the nature of their operations and the need for regulatory oversight.

5. Shareholder or Investor Requirements: Even if a company might not be legally required to conduct an audit, shareholders or investors might insist on audited financial statements for transparency and to ensure the reliability of financial information.

Conclusion:

It's important to note that the regulations and thresholds for audit requirements can change over time due to legislative updates or changes in accounting standards. Therefore, it's advisable for companies to regularly review the current regulations or consult with legal and financial advisors to ensure compliance with the prevailing requirements.