In a bid to ease the regulatory burden on businesses, new thresholds for classifying company sizes have been announced.
This change, introduced by the Conservative Government, could exempt around 132,000 small and medium sized enterprises (SMEs) from needing a mandatory audit.
Under the current plans, which may be subject to change, companies will be able to benefit from the threshold changes for financial years commencing on or after 1 October 2024.
How will new audit thresholds affect my business?
By increasing the audit thresholds, many thousands of SMEs will no longer require statutory audits and will instead be in a position to redirect the funds and resources usually allocated to an audit, to benefit other areas of their business.
Whilst you might breathe a sigh of relief at no longer needing to grapple with the complexities of an audit, it is worth bearing in mind some of the challenges that exemption comes with.
Many stakeholders and investors rely on audits to provide them with accurate insights into a business’s financial health and so financial transparency could be compromised.
SMEs should carefully consider whether the savings from reduced audit costs outweigh the benefits of voluntary audits; in particular, upholding good financial health and investor confidence.
Although some companies may no longer be mandated to conduct statutory audits, they will still be under regulatory scrutiny.
This change promotes a risk-based approach to financial management, internal controls, and reporting, ensuring transparency and accountability without the need for a formal audit.
The new audit thresholds
For micro businesses, the turnover threshold has increased from £632,000 to £1 million and a gross asset threshold of £500,000 increased from £316,000.
For small businesses, the turnover threshold has increased from £10.2 million to £15 million and a gross asset threshold of £7.5 million increased from £5.1 million.
For medium businesses, the turnover threshold has increased from £36 million to £54 million and a gross asset threshold of £27 million increased from £18 million.
Any figure exceeding this would mean the entity is categorised as a larger company.
Currently, the employee numbers for micro, small and medium enterprises will stay the same at 10, 50 and 250 respectively, however, further consultation is expected on the threshold of medium-sized enterprise employees to increase it from 250 to 500 employees.
Additionally, consideration is being given to eliminating the requirement for medium-sized enterprises to prepare a strategic report.
To be eligible for the exemptions you need to meet two out of the three threshold criteria.
How should I prepare for the changes to audit rules?
Partner and audit specialist Emma Wilsher comments: “Given that this is such a significant change, any business likely to be impacted should not let the opportunity to consult with their accountant pass them by.
“It is important to consider the impact of your decision to either accept the exemption, or to opt for a voluntary audit, and to ensure that your long-term business objectives inform what it is that you choose to do.
“Robust financial and risk management, good governance and adherence to reporting standards are all cornerstones of a viable, healthy and resilient business, and so businesses should have some awareness of how these things can be achieved whether with or without an audit.”
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