You might not think about audits daily, but knowing when your company needs an audit is essential for staying compliant and avoiding unnecessary penalties. For many, the topic raises plenty of questions. Do you need an audit every year? What triggers the requirement? And how can you prepare for one? Let’s clear up some of the confusion.
What is a statutory audit, and why is it important?
A statutory audit is an independent examination of your company’s financial statements to ensure they’re accurate and comply with legal requirements. It’s not just about ticking regulatory boxes – it’s about building trust. Audited accounts can reassure stakeholders, investors, and creditors that your finances are well.
Does every company need an audit?
Not all companies are legally required to have an audit. Whether your company needs one depends mainly on its size and structure.
For the 2024/25 financial year, you’ll need an audit if your company meets two or more of the following criteria:
- An annual turnover of more than £10.2 million.
- Assets worth more than £5.1m.
- More than 50 employees.
Even if your company falls below these thresholds, certain circumstances might still require an audit. For instance:
- Public companies must always have an audit.
- Charities with income exceeding £1m, or certain thresholds for gross assets and income, might require one.
- Companies that are part of a group exceeding the thresholds may also need an audit.
If you’re unsure whether you meet these criteria, consulting a professional accountant can help you confirm your obligations.
Why might a company voluntarily opt for an audit?
Some companies choose to have an audit even if it’s not legally required. Why? Because audits can provide valuable insights and reassurance. For example:
- Investor confidence: Audited accounts can make your business attractive to investors or lenders.
- Internal improvements: The process often highlights inefficiencies or risks in financial controls.
- Preparation for growth: As your business expands, audited accounts can simplify processes like securing funding or undergoing due diligence.
What happens during an audit?
An audit typically involves the following steps:
- Planning: The auditors will meet with you to understand your business, financial systems, and any specific risks.
- Review: They’ll examine financial records, such as transactions, bank statements, and accounting systems.
- Testing: Auditors may test samples of transactions to ensure they’re correctly recorded.
- Reporting: The audit concludes with a report confirming whether your financial statements accurately reflect your company’s position.
While audits can seem daunting, a well-organised accounting system makes the process smoother.
What are the penalties for not complying with audit requirements?
Complying with audit requirements can result in severe penalties. Companies House may impose fines or even strike your business off the register if accounts are not filed correctly or on time. Directors can also face personal liability for breaches.
Avoiding these issues starts with understanding your obligations and meeting them proactively.
How can you prepare for an audit?
Preparation is key to a smooth audit process. Here are some practical steps:
- Keep records up to date: Regularly review your financial records to ensure they’re accurate and complete.
- Understand key documents: Familiarise yourself with documents auditors are likely to request, such as ledgers, invoices, and bank reconciliations.
- Address issues early: Resolve any discrepancies or errors in your accounts before the audit begins.
- Communicate with your auditor: Good communication helps ensure a clear understanding of timelines, expectations, and challenges.
What changes are expected in auditing regulations?
The auditing landscape has been evolving in recent years. New Government proposals, including reforms to the UK’s audit and corporate governance framework, could impact requirements in the future. These reforms would aim to improve transparency and accountability, particularly for larger companies and public interest entities. Keeping an eye on these developments will help you stay prepared for any changes.
Where can you find support?
Understanding audit requirements and preparing for one can be overwhelming. That’s where professional guidance comes in. If you don’t know when your company needs an audit or you want to discuss how audits can benefit your business, we at Pearson May can help. We have worked with businesses of all sizes, helping them navigate the audit process, meet compliance requirements, and unlock growth opportunities.
Contact us. We’re here to help you every step of the way.