Audit thresholds change
In a move to ease the reporting burden on UK companies, the UK Government have announced a series of deregulatory changes. Applicable for accounting periods commencing on or after 1 October 2024, the changes will see existing company size thresholds rise by 50%.
The move is estimated to benefit 132,000 SMEs, with 5,000 large companies (63%*) being reclassified as medium sized and 14,000 medium sized companies (38%) reclassified as small, enabling those small to potentially benefit from audit exemption.
Whilst there is currently no change to the employee number threshold, further potential changes include the proposal to increase the employee numbers for medium sized companies from 250 to 500 and removing the requirement for medium sized entities from having to include a strategic report within their annual report. Further commentary on this is expected later in 2024.
The new company size thresholds are as below:
A ‘two year rule’ applies when determining a company’s size meaning a company will only fail to be small if it breaches the thresholds for two consecutive years.
Generally, a company is exempt from audit if it meets two of the three criteria of a small company. It is important to remember however that size alone does not determine the need for an audit. Consideration must be given to group reporting requirements, lender covenants and constitutional requirements for example. Advice should be taken prior to deciding whether an audit is still required.
(*The number of private sector businesses in the UK at the start of 2023 was: 5.51m small companies, 36,900 medium companies, and 8,000 large companies. Source: Gov.uk official statistics 5 October 2023).