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Changes to audit exemption threshold from 1 October 2012
The Government’s response to the consultation on Audit Exemptions and Change of Accounting Framework confirms plans to relax the audit exemption threshold for accounting periods ending on or after 1 October 2012.
Currently, to qualify for exemption from audit, a company/LLP must satisfy the following three conditions:
- the company or LLP qualifies as small, and
- its turnover should not be more than £6.5m in that year, and
- its total balance sheet for the year is not more than £3.26m.
The new regulations will align mandatory audit thresholds with accounting thresholds, meaning SMEs will be able to obtain an exemption if they meet two out of three criteria relating to balance sheet total, turnover and number of employees. This change will exempt approximately 36,000 from compulsory audit.
The Government will also exempt most subsidiary companies from mandatory audit, as long as their parent company guarantees their liabilities. A further 83,000 subsidiary companies will benefit.
In addition, another 67,000 dormant subsidiaries will no longer need to prepare and file annual accounts, provided they receive a similar guarantee.
Following consultation by the Financial Reporting Council (FRC) on changes to UK Generally Accepted Accounting Principles (UK GAAP), the Government has also decided to allow companies that prepare their accounts under International Financial Reporting Standards (IFRS) to move to UK GAAP and take advantage of reduced disclosures.
The new regulations will remove EU gold-plating and ensure UK SMEs are not at a disadvantage compared to their European competitors. These changes are part of the Government’s wider drive to reduce unnecessary burdens and make the UK one of the best places in the world to start, finance and grow a business.
The regulations are expected to come into force for accounting years ending on or after 1 October 2012