Changes in audit thresholds

By Lecturer, Joanne Miller

28 November 2016

The UK Government announced an increase in the audit exemption threshold at the beginning of 2016. It was confirmed that all companies classed as small for reporting requirements will also be exempt from audit. Find out how this relates to your learning and your type of workplace. 

This increase applies to accounting periods starting on or after 1 January 2016.

In order to be classed as a small company - and therefore, be exempt from the audit requirement - companies are required to meet any two of the following three criteria:

  • Turnover ≤ £10.2m (increased from £6.5m)
  • Total assets ≤ £5.1m (increased from £3.26m)
  • ≤ 50 employees (unchanged)

Students will first come across these limits at Test of Competence (TC) in Principles of Auditing and Reporting (PAR), where the requirement for audit is covered. This then flows into Assurance and Business Systems (ABS) at Test of Professional Skills (TPS), where different types of assurance engagements are covered, in addition to the statutory audit process.

It is worth noting that the same rules still exist in respect of firms which cannot be audit exempt, regardless of size. This includes those which have a listed parent company, members of ineligible groups, and those in regulated sectors such as banks and building societies. This is covered in more detail in the TC PAR course.

With this increase in the audit threshold, there will be an increase in focus on other types of assurance engagements as it is expected that around 7,400 companies will no longer require a statutory audit.

The Government anticipates that 4,400 of these companies will choose to continue to have an audit. This leaves 3,000 companies expected to take up the exemption. These companies, however, are still likely to engage the services of CA firms, through the various other types of assurance engagement that are covered at ABS.

Students may also encounter more of these other assurance engagements in the workplace, depending on the size and nature of their firm and clients.

At Test of Professional Expertise (TPE), students should also be aware of these new limits as this could affect a variety of case study scenarios.

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