Currently, to qualify for audit exemption, a company or LLP must satisfy the following three conditions:
- the company or LLP qualifies as small
- its turnover should not be more than £6.5m in that year
- its balance sheet for the year must not show gross assets more than £3.26m
The new regulations 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. Whereas with the current system you need to breach only one of the thresholds require an audit.
It is thought this change will exempt approximately 36,000 SMEs from compulsory audit.
Although these changes will remove the administrative burden of a statutory audit it is still crucial that SMEs have strong financial controls in place.
These new regulations are expected to come into force for accounting years ending on or after 1 October 2012.