Audit rules are changing – Get ready

In a bid to ease the regulatory burden on businesses, new thresholds for classifying a company’s size have been announced.

This change, introduced by the previous Government, could allow around 132,000 businesses to skip mandatory audits.

Under the current plans, which may be subject to change, companies will be able to benefit from the threshold changes for financial years commencing on, or after, 1 October 2024.

How will this affect my business?

By increasing the audit thresholds, some SMEs will no longer require statutory audits.

However, with this change comes new challenges. Many stakeholders and investors rely on audits to provide them with accurate insights into a business’s financial health. The exemption could therefore lead to reduced financial transparency and oversight.

It will be essential for SMEs to carefully consider whether the savings from reduced audit costs outweigh the benefits of voluntary audits in ensuring strong financial health and maintaining investor confidence.

Although some companies may no longer be required to have their statutory accounts audited, they will still be under regulatory scrutiny.

This change promotes a risk-based approach to financial management, internal controls, and reporting.

The new thresholds

For micro companies, the turnover threshold will increase from £632,000 to £1 million and the gross asset threshold will increase from £316,000 to £500,000.

For small companies, the turnover threshold will increase from £10.2 million to £15 million and the gross asset threshold will increase from £5.1 million to £7.5 million.

For medium companies, the turnover threshold will increase from £36 million to £54 million and the gross asset threshold will increase from £18 million to £27 million.

Currently, the employee numbers thresholds for micro, small and medium companies will stay the same at 10, 50 and 250 respectively. However, further consultation is expected on the criteria for medium-sized enterprises to increase the limit from 250 to 500 employees.

Any companies exceeding the criteria for medium sized businesses will be classified as large.

Micro and small companies are exempt from the audit requirement.

Additionally, consideration is being given to eliminating the requirement for medium-sized enterprises to prepare a strategic report.

To be eligible for the exemptions, you need to meet two out of the three threshold criteria.

How should I prepare?

While many businesses will feel relief from these changes, they need to stay on top of their financial management and uphold strong governance and reporting standards.

By managing risks well and sticking to best practices, businesses can adapt to these changes smoothly and contribute to a healthy, resilient economy.

If you would like assistance with your audits or would like advice on whether your business requires one, please contact our team.