Audit exemption in the UK

ICAEW guidance and support

Audit and Assurance Faculty
The faculty provides technical expertise in the field of audit and assurance within the ICAEW and is a leading UK authority on external audit, other assurance services and internal audit. It offers a range of publications (including technical releases), events and guidance.

ICAEW helpsheets

The Technical Advisory Service produces the following regularly updated guides:

• Audit of clubs, associations and societies
• Can a small UK subsidiary of an overseas parent qualify for audit exemption?
• Is an audit required for a company?
• Ineligible companies and groups
• Balance sheet statements for small companies and LLPs
• Calculating employee numbers
• Is a company or group small?

Reports

Audit exemption: Impact on small companies
Research report looking at the impact of exempting small companies from statutory audit, published by the Department for Business, Energy & Industrial Strategy in January 2017. The research highlights that a third of survey respondents either thought they were ineligible for audit exemption or did not know if they were eligible and that a large proportion of these companies were mistaken.

Legislation and regulations

The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015
Full text of the statutory instrument made on 26 March 2015, which came into force on 6 April 2015.

The legislation has changed small and medium company thresholds for reporting purposes and will allow small companies to prepare and file abridged accounts for accounting periods beginning on or after 1 January 2016. Early adoption is permitted for accounting periods beginning on or after 1 January 2015 but before 1 January 2016.

These revised small company thresholds will also be effective for audit exemption, but only for periods beginning on or after 1 January 2016. Companies which were not previously audit exempt but which would be under the new thresholds can choose to adopt the new rules early to benefit from reduced disclosure requirements but they will not be exempt from an audit for that year.

The Charities Act 2011 (Accounts and Audit) Order 2015
Full text of the statutory instrument made on 19 February 2015, which came into force on 31 March 2015. This order amends audit exemption rules for charities.

The Charities Act 2011 (Group Accounts) Regulations 2015
Full text of the statutory instrument made on 19 February 2015, which came into force on 31 March 2015. This order amends audit exemption rules for charities group accounts.

Life of a company: annual requirements (GP2)
Guidance from Companies House explaining criteria for companies to qualify for audit exemption.

Life of a limited liability partnership (GPLLP2)
Guidance from Companies House which explains the criteria for LLPs to qualify for audit exemption.

Archive

2014

Charities: audit and independent examination
Government consultation on recommendations to increase financial thresholds for the auditing of charity accounts, including the government response published in February 2015. The consultation period closed in January 2015.

2012

The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012
Full text of the statutory instrument made on 6 September 2012, which came into force on 1 October 2012.

Audit, accounting and reporting: guidance for UK companies
Information from the Department for Business, Innovation and Skills (BIS) explaining audit exemptions and the changes to the accounting framework.

2011

Audit Exemptions and Change of Accounting Framework: Consultation and Summary of Responses
Department for Business, Innovation and Skills information with links to the regulation, responses to the consultation and consultation documents, including:

• Audit exemptions and accounting framework: Government response to consultation

  Published in September 2012.

• Audit exemptions: Impact assessment (final stage)

  Dated 12 June 2012.

• Amendment of restrictions for companies moving between IFRS and UK GAAP: Impact assessment (final stage)

  Dated 12 June 2012.

• Audit exemptions and change of accounting framework: Summary of responses to consultation

  Published in March 2012.

• Consultation on audit exemptions and change of accounting framework

  Published in October 2011.

2008

Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008 (SI 2008/393)
Full text of the statutory instrument which put in place the new thresholds applicable for financial years beginning on or after 6 April 2008. A set of explanatory notes is also available.

Directors’ Views on Accounting and Auditing Requirements for SMEs
Study commissioned in August 2007 by the Department of Trade and Industry (DTI) focusing on accounting and auditing requirements for SMEs in UK company law. The report by Dr Jill Collis provides some useful background to the simplification of the financial reporting requirements for SMEs and includes tables covering UK thresholds for abbreviated accounts 1981–2008 and UK thresholds for total audit exemption 1981–2008. Produced in association with Kingston University London and published in April 2008.

2007

Implementation of Directive 2006/46/EC on Company Reporting: Amending Accounting Directives
Government response to the consultation, published by the Department for Business Enterprise and Regulatory Reform in July 2007.

DTI consultation on amendments to the 4th and 7th Accounting Directives (ICAEW REP 46/07)
ICAEW response to the consultation document published in May 2007.

Implementation of Directive 2006/46/EC on Company Reporting: Amending the Accounting Directives
Consultative document from the DTI published in March 2007 which would see an increase in the audit exemption thresholds.

2006

The Companies Act 1985 (Small Companies' Accounts and Audit) Regulations 2006
Statutory Instrument 2006 No. 2782, which came into force on 8th November 2006, extended audit exemption to FSA regulated small companies.

The Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006
Statutory Instrument 2006 No. 265, which came into force on 6 April 2006, increased the audit exemption threshold level for industrial and provident societies to £5.6m.

FSA to end audit requirements for small firms
Press release issued by the FSA on 28 July 2006 announcing the ‘positive response from the industry’ to the proposals. A summary of the feedback received was published in Handbook Notice 57.

FSA to consult on ending audit requirements for small firms
Press release issued by the FSA on 7 April 2006. The consultation documents are available in CP06/6: Quarterly consultation (No.8). Other related documents are available from the FSA website.

2005

POBA launches research into accounting and auditing needs of small and medium sized companies (POBA)
Press release from the Professional Oversight Board for Accountancy, published on 6th July 2005, announcing a research project focusing on small and medium sized companies which will look at the effects of recent regulatory changes including higher audit thresholds.

2004

£5.6 million: threat or opportunity?; a guide for practitioners on the audit threshold increase
Guide published by the Audit and Assurance Faculty in August 2004.

Small and Medium Company Thresholds and Audit Exemption Thresholds
A set of FAQs prepared by Companies House on the thresholds introduced in 2004.

The Companies Act 1985 (Accounts of Small and Medium-Sized Enterprises and Audit Exemption) (Amendment) Regulations 2004
Full text of Statutory Instrument 2004 number 16.

2003

Pre-Budget Report 2003
On 10 December 2003 the Chancellor confirmed that ‘for firms with turnovers below £5.6m there will now be no independent audit requirement’. This is outlined in Chapter 3: Meeting the productivity challenge of the Pre-Budget Report. It states that ‘where appropriate, the Government is reducing the regulatory burden and considering well-targeted exemptions’, including ‘increasing the statutory audit turnover threshold to £5.6 million – the maximum allowed under EU law – providing a further 69,000 companies with the flexibility to opt out of an independent audit’.

The Debate: The audit threshold
Article presenting opposing views on the audit threshold, published on 16 October 2003 in Accountancy Age.

Director's Views on Exemption from Statutory Audit
Research report for the DTI, also known as the Collis Report, published in October 2003.

The Beneficial Impact of Raising Audit Thresholds from £350,000 to £1,000,000
Report from the Society of Professional Accountants (SPA), published in July 2003.

Northern Ireland

Audit exemption thresholds for Northern Ireland were set by the Department of Enterprise, Trade and Investment prior to 1 October 2009 (following full commencement of the Companies Act 2006 which introduced a single company law regime applying to the whole of the United Kingdom).

Prior to its integration Companies Registry NI stated that company law remains a "transferred" matter so the NI Assembly can amend or repeal the Act as it applies to Northern Ireland if it so desires.

Online articles

The Library provides access to leading business, finance and management journals. These journals are available to logged-in ICAEW members, ACA students and other entitled users subject to suppliers' terms of use. 

Articles and books in the Library collection

Selected articles

Click on the links to see our catalogue record for each article. You can obtain copies of articles through our document supply service.

Audit exemption
Company Secretary's Review, 24 September 2014, p.96
Distinguishes the rules which apply to dormant companies, small companies and subsidiary companies for purposes of qualifying to audit exemption under the Companies Act 2006 (ss 480, 477 and 479A). Inlcudes the text of the exemption statement that should be included on a company's balance sheet.

The demand for audit in private firms: recent large-sample evidence from the UK
European Accounting Review, 2014, pages 1-23
The authors examined the reasons companies choose to undergo voluntary audit, using a sample of 6274 recently exempt companies. Their results indicate that companies are more likely to purchase voluntary audits if they have greater agency costs, are riskier, wish to raise capital, purchase non-audit services from their auditor, and exhibited greater demand for audit assurance in the mandatory regime.

• View a list of articles and books in our collection on audit exemption

To find out how you can borrow books from the Library please see our guide to book loans. You can obtain copies of articles or extracts of books and reports through our document supply service.