Earlier this year, then-PM Rishi Sunak announced changes to the audit thresholds, which he said would be introduced in October 2024. So, what exactly has changed and what are the implications for business?
What are the new audit thresholds?
The UK government has announced plans to increase the financial thresholds that determine company sizes, which in turn affect statutory auditing requirements. This is significant, as these thresholds determine whether a company requires statutory auditing.
The proposed new turnover thresholds are::
- Micro-entities: Turnover threshold up from £632,000 to £1 million.
- Small companies: Turnover threshold up from £10.2 million to £15 million.
- Medium-sized companies: Turnover threshold up from £36 million to £54 million.
These changes are intended to reduce the reporting burden on businesses by allowing more companies to qualify for simplified reporting regimes. The government plans to lay the necessary legislation before Parliament by the end of 2024, with the changes expected to come into effect on 6 April 2025.
Meanwhile, the government has also announced plans to increase the financial thresholds that determine company sizes, which in turn affect statutory audit requirements. A company may be exempt from having to arrange a statutory audit if it meets at least two out of three of these criteria:
- Annual turnover of no more than £15 million. Increased from £10.2 million.
- Total assets of no more than £7.5 million. Increased from £5.1 million.
- 50 or fewer employees. Unchanged.
These changes mean that fewer companies will have to arrange an audit – as the annual turnover and asset requirements have increased significantly. The key takeaway is that if your turnover is between £10.2 million and £15 million and you had to arrange audits in the past, you will now probably be exempt. These changes are expected to exempt around 132,000 businesses from statutory auditing.
How will the changes impact businesses?
While the changes mean that many more businesses are exempt from audits, it doesn’t mean that they shouldn’t take financial reporting seriously. In fact, without the obligation to get a financial expert in to look over your accounts and provide advice on how to improve, you’re on your own a little bit more. It’s essential to maintain proper bookkeeping and accounting processes.
There will also be businesses that find themselves just below the audit threshold for the first time in a while. They should monitor their financial position closely, seeking the help of accountants to ensure the books are accurate. You will have to arrange an audit for the financial year following the financial year in which you exceeded the threshold.
The benefits of a voluntary audit
The audit thresholds have increased, but does that mean you should skip arranging an audit? Not necessarily – in fact, opting for a voluntary audit can offer significant benefits for your business
First, they provide companies an independent review of financial statements, which can build trust with investors, creditors, and customers, which is particularly valuable for companies seeking financing or planning to expand.
Voluntary audits also help improve internal controls. Auditors assess a company’s systems, highlighting weaknesses or inefficiencies that could lead to financial mismanagement or fraud. You can then build a plan to address any issues.
In addition, audits help you ensure regulatory compliance by identifying areas where the company may need to improve its adherence to tax laws or industry regulations. This reduces the risk of penalties or legal issues down the line.
Finally, regular audits can provide useful insights into the company’s financial health, helping leadership make more informed decisions and plan for the future with greater confidence.
The bottom line
In conclusion, the new audit thresholds could bring significant changes, reducing the statutory audit requirements for many businesses. While this offers some welcome relief in terms of reporting obligations, it’s vital not to overlook the value of maintaining robust financial practices.
For those now exempt from audits, a voluntary audit remains a powerful tool to enhance financial transparency, improve internal processes, and build confidence with stakeholders. By staying proactive and considering the benefits of a voluntary audit, businesses can position themselves for long-term success and stability in a changing regulatory landscape.
Looking for an auditor who can provide an independent review of your internal controls and accounting? Get in touch with us today.
