Ten things to know when checking audit thresholds (2024)

Although the audit thresholds are set out in legislation, the application of it can be sometimes very challenging with changes in circ*mstances such as acquisition or disposal of subsidiaries, impact of Brexit etc.

Audit thresholds

Companies are exempt from audit as per section 477 of Companies Act 2006 (the Act) if they qualify assmall companiesunder section382-384, unless they are members of a group or are charities and hence are required to follow the different charity audit thresholds.

A company is small if it meetstwo out of threeof the following criteriafor two consecutive years

‘New’ limits (for periods beginning on or after 1 January 2016) (net)

‘New’ limits (for periods beginning on or after 1 January 2016) (gross)


< £10.2m

< £12.2m

Total assets

< £5.1m

< £6.1m

Number of employees

< 50

< 50

Once a company size is established, it must meet or cease to meet only when the limits are exceeded for two consecutive years (see S.382(2) of the Act). The audit exemption does not apply if the company isineligible.

The following should be borne in mind when applying the above thresholds:

1. A company must have an audit if at any time in the financial year it has been:

  • a public company (unless it’s dormant)
  • a subsidiary company within a group which is not small
  • an authorised insurance company or carrying out insurance market activity
  • involved in banking or issuing e-money
  • a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
  • a corporate body and its shares have been traded on a UK-regulated market.

2. The ineligible rules only refer to the financial year for which the accounts relate.

3. A group has to meet the above limits as a whole to be able to exempt from an audit. If the group does not qualify as a small group, then an audit will be required for each group member.

4. There is an exemption for subsidiaries under section479A-479Cif they meet certain criteria and if the parent company provides a guarantee in respect of all actual outstanding liabilities and all contingent liabilities at the end of the financial year.

5. Due to Brexit, from 1 January 2021 section 479A subsidiary audit exemption is only available if its parent undertaking is established under the law of any part of the United Kingdom, as highlighted in this ACCA article.

6. Under the old rules a plc in the group would make the entire group ineligible but under the new rules a plc will only make that company and group ineligible if the plc is alsoa traded company(eg listed on the London Stock Exchange). Another benefit is that a group with an AIM-listed plc company will not make the group ineligible, and this was not available under the old rules. So having a ‘vanity plc’ in the group will no longer, on its own, prevent other group companies preparing accounts under the small regime and claiming small audit exemptions.

7. For financial reporting periods commencing on or after 31 December 2020, only a parent established in the UK will be able to provide the guarantee for subsidiary audit exemption. Companies which previously looked to an overseas parent in the EU will either need to obtain the guarantee from a UK registered parent (if there is one) or have the financial statements audited.

8. A small subsidiary company which is part of a large group (which is not ineligible), can qualify as small for accounts preparation purposes. Then the small company can prepare its financial statements in accordance with FRS 102 Section 1A, but an audit would still be required unless an exemption is taken as described above.

9. A dormant company is generally entitled to exemption from audit. Under s.480, a company is exempt from the requirements of this Act relating to the audit of accounts in respect of a financial year if:

a.it has been dormant since its formation; or

b. it has been dormant since the end of the previous financial year and the following conditions are met:

  • as regards its individual accounts for the financial year in question, it is entitled to prepare accounts in accordance with the small companies’ regime, or would be so entitled but for having been a public company or a member of an ineligible group; and
  • it is not required to prepare group accounts for that year.

10. Although small companies are exempt from an audit under the criteria, they may still undertake an audit for various other reasons eg:

  • the company’s lender requires an audit
  • a grant provider requires an audit
  • directors or shareholders may request an audit assurance
  • the company constitution may require it
  • to support the future sale or public offering of the business.

Useful resources

ACCA technical factsheet on consolidated statements

ACCA guide to the latest GAAP

Ten things to know when checking audit thresholds (2024)


What are the audit thresholds? ›

Audit thresholds are the criteria used to determine which companies are required to have their financial statements audited. For group companies, which comprise a parent company and its subsidiaries, special rules apply to determine the audit thresholds.

What are the basic things to know about auditing? ›

The purpose of an audit is to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position of the organisation at a given date, for example: Are details of what is owned and what the organisation owes properly recorded in the balance sheet?

How to evaluate audit evidence? ›

In evaluating audit evidence, this includes considering biases (such as availability bias, confirmation bias, anchoring bias and others), and exploring whether the audit evidence obtained corroborates or contradicts management's assertions.

What is the threshold for audited financial statements? ›

BIR – P3M threshold

Section 232 of the NIRC requires that all companies with operations grossing a quarterly amount of at least P 150,000 to submit an audited financial statement.

How do you determine materiality threshold in audit? ›

The materiality threshold is defined as a percentage of that base. The most commonly used base in auditing is net income (earnings / profits). Most commonly percentages are in the range of 5 – 10 percent (for example an amount <5% = immaterial, > 10% material and 5-10% requires judgment).

How do you calculate the materiality threshold in auditing? ›

Common percentage ranges used for materiality calculations include 0.5% to 2% of total assets, 0.5% to 5% of total revenues, or 5% to 10% of net income or equity. Calculate the preliminary materiality: Multiply the chosen benchmark by the selected percentage to calculate the preliminary materiality.

What are the 12 auditing principles? ›

The basic principles of auditing are confidentiality, integrity, objectivity, independence, skills and competence, work performed by others, documentation, planning, audit evidence, accounting system and internal control, and audit reporting.

What is an audit checklist? ›

An audit checklist may be a document or tool that to facilitate an audit programme which contains documented information such as the scope of the audit, evidence collection, audit tests and methods, analysis of the results as well as the conclusion and follow up actions such as corrective and preventive actions.

What are the 3 C's of auditing? ›

Combining the Three C's

At the intersection of communication, coordination, and culture is an internal auditing system that drives and supports the quality target and the employees working to make it all happen.

What are the 5 C's of audit? ›

What Are the 5 C's of Internal Audit? Internal audit reports often outline the criteria, condition, cause, consequence, and corrective action.

What are the 7 audit procedures? ›

Audit procedures to obtain audit evidence can include inspection, observation, confirmation, recalculation, reperformance and analytical procedures, often in some combination, in addition to inquiry.

What are the 4 C's of audit findings? ›

In conclusion, the 4 C's of internal audit—Competence, Confidentiality, Compliance, and Communication—form the pillars of a robust and effective internal audit function. Competence ensures that internal auditors possess the necessary knowledge and skills to perform their duties with proficiency.

What income gets audited the most? ›

The taxpayers most likely to be audited are those with annual incomes exceeding $10 million — about 2.4% of those returns were audited in 2020. But the second most likely group to get audited are low- and moderate-income taxpayers who claim the Earned Income Tax Credit, or EITC.

What is the rule for audited balance sheet? ›

Certain entities are compelled to have their accounts audited as per Section 44AB. This includes businesses whose total sales, turnover, or gross receipts exceed Rs 2 crore in a financial year.

What are the materiality thresholds? ›

The materiality threshold is a measure of whether an amount is big enough to affect financial decision-makers. Determining which amounts are large enough to make a difference, however, is inherently subjective.

What are the 4 categories of audit findings? ›

The 4 types of audit opinions
OpinionType of audit report
UnqualifiedClean report
QualifiedQualified report
Disclaimer of opinionDisclaimer report
AdverseAdverse audit report
Sep 22, 2023

What are the company size thresholds? ›

Current company size thresholds
Two out of threeMicroMedium
Annual turnoverUnder £623kUnder £36m
Balance sheet totalUnder £316kUnder £18m
Average no. of employees10 or fewer250 or fewer
Mar 23, 2024

What is the single audit requirement threshold? ›

The Single Audit Act requires an annual audit of non-Federal entities, including Tribes, that expend $750,000 or more of Federal Financial Assistance in a fiscal year.

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