Statutory audit: does my limited company need one?

A statutory audit is an audit that’s required by law. When it comes to limited companies, statutory audits are mandatory for a wide range of businesses. However, while the rules are generally straightforward, there are all sorts of special cases and exemptions. To help you work out whether you need a statutory audit, this blog takes a detailed look at what the law says.

What is a statutory audit?

A statutory audit is a legally required review of your limited company’s financial records. It should be undertaken by an independent and registered auditor like THP.

Although mandated, statutory audits can bring benefits to your business. They give you a significant level of assurance that your financial statements are free from material misstatement. An auditor will also confirm that your records comply with the most recent legislation and accounting standards. This in turn helps to build trust with key stakeholders, such as clients, shareholders, clients, customers and suppliers.

Do I need a statutory audit?

Whether your limited company needs a statutory audit depends on a range of factors. These include your articles of association, your company size and the industry you work in.

Articles of association and shareholder requests

If your limited company’s articles of association say that you must have an annual statutory audit, then that’s exactly what you need to do.

However, even if your articles don’t mandate an audit, you need one if shareholders owning at least 10% of shares ask for one. For this to be effective, the shareholders must request a statutory audit in writing. This has to be sent to your limited company’s registered address. It must also arrive no later than one month before the end of the financial year for which the audit is requested.

If you’re in this position, and you don’t currently have an auditor, get in touch with our audit team today.

Statutory audit and company size

When companies reach a certain size, they need to undertake a statutory audit. Since 1st January 2016, companies meeting two of the following criteria have had to undertake a mandatory audit:

• An annual turnover of more than £10.2 million
• Assets of more than £5.1 million
• 50+ employees on average

If your company is nearing the statutory audit threshold, please get in touch. We’ll be able to advise you how and when our auditors can help you.

Companies that must be audited

Legislation also demands that limited companies of certain types – or in certain sectors – must be audited. The following need a statutory audit, regardless of company size:

• Public companies
• Subsidiary companies
• Authorised insurance companies / those carrying out insurance market activity
• Firms involved in banking or issuing electronic money
• Markets in Financial Instruments Directive (MiFID) investment firms
• Undertakings for Collective Investment in Transferable Securities (UCITS) management companies
• Corporate bodies whose shares have been traded on a regulated market
• Funders of master trust pension schemes
• Special register bodies
• Pensions or labour relations bodies

If you’re unsure whether your business falls into any of these categories, arrange an appointment with our audit team to discuss the matter.

Audit exemptions

Most audit exemptions are granted because a limited company doesn’t meet the size threshold for statutory audit.

If your company does qualify for an exemption on these grounds, you need to include the following statement on your accounts’ balance sheet:

For the year ending [insert the relevant year], the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies.

The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.

The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.

These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

In addition, dormant public companies are usually exempt from statutory audit (though not always). Subsidiary companies can also qualify for exemptions – you can find out more about these here.

What next?

If your limited company doesn’t need a statutory audit, you could still benefit from an independent internal audit. This will provide you with detailed financial information on which to base business decisions. It also reduces the risk of fraud and error, giving your business enhanced credibility with key stakeholders.

If you do need a statutory audit, THP can help. We specialise in helping privately owned companies with a turnover of up to £200 million, but we also work with larger firms. To learn more about how we can help you, visit our audit services page.