Government moves to raise audit threshold

By Anne Adrain, ICAS Assistant Director, Sustainability and Assurance

28 January 2016

Business Minister Baroness Neville-Rolfe makes a key announcement on the audit exemption threshold.

The UK Government has decided to raise the audit exemption threshold to the maximum level possible, despite concerns from some stakeholders that this will have a negative impact on financial reporting by many smaller entities.

In a parliamentary statement, Baroness Neville-Rolfe said that the threshold for audit exemption will remain aligned with the revised small company reporting thresholds. There was some concern that removing the link would cause unnecessary confusion amongst users.

Although the change will remove a further 7,400 companies from the need for an audit, the government anticipates that many of these companies will continue to choose to have an annual audit. Others may look to alternative means of assuring the reliability of their systems and accounts.

As a result of the implementation of the Companies and Groups (Accounts and Reports) Regulations 2015 (“the Regulations”) in the UK, which came into effect in April 2015, the thresholds for audit exemption would have increased automatically.

The Department for Business, Innovation and Skills (BIS) sought views as to whether action should be taken to introduce separate limits for audit exemption purposes.

Following the ministerial statement on Tuesday, a company will be considered small for both financial reporting and auditing purposes if it meets two out of the following three criteria (subject to the usual two-year rule):

  • Total assets ≤£5.1m;
  • Turnover ≤£10.2m;
  • ≤50 employees;

and they are not otherwise ineligible for audit exemption.

The audit exemption changes take effect for accounting periods beginning on or after 1 January, 2016.  They cannot be early adopted unlike the accounting requirements of the Regulations which may be early adopted for accounting periods beginning on or after 1 January, 2015.

ICAS view

ICAS had previously argued that the suggested increase in the audit threshold to the maximum level permitted may have a negative impact, particularly in light of the proposed simplifications to small company accounts.

Raising the audit exemption threshold would allow fairly sizeable companies to have no external assurance on their financial statements, many of whom are likely to have an impact on the communities they serve and attract significant local interest.

These interests are not well-served by continually increasing the small company thresholds which poses a risk to the quality of financial information and, consequently, the economic prospects for smaller businesses.

Find out more in the ministerial statement.


  • Business
  • Accountancy

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