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Audit exemption for UK subsidiaries

My client is an American company with a UK subsidiary. It is not a parent company, nor is its ultimate parent listed. It clearly meets the size criteria for audit exemption as a standalone company, and qualifies to file abbreviated accounts.

I have spoken to some experienced auditors, and conventional wisdom seems to be that such a company does not require an audit. However, the Companies House guidance seems to suggest otherwise, or at best is ambiguous:

3. Are all types of small companies eligible for the exemption?

No. Audited accounts must be delivered to Companies House if the company falls into any of the following categories:

(a) A parent company or subsidiary undertaking (unless dormant for the period during which it was a subsidiary) except where:

* the group qualifies as a small group or would qualify if all the bodies corporate in the group were companies; and
* the turnover for the whole group is not more than £5.6 million net or £6.72 million gross; and
* the group's combined balance sheet total is not more than £2.8 million net (£3.36 million gross).

This appears to imply that in the case of a subsidiary company, one must consider the size of the group: the worldwide group would not be within the limits. The accepted wisdom that no audit is required presumably implies that only the size of the UK group need to be considered, but I am having difficulty in finding authority for that.

Can anyone help?

bc

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Companies Act
Subsidiary undertakings are excluded from exemption by s.249B(1)(f) CA 1985, unless they are dormant (s.249B(1A)) or part of a small group as defined in s.249B(1C). There is no indication that foreign members of groups do not count for this purpose - the same as with the small companies rate of tax.

Just how experienced were these auditors that you have consulted? Ask them to specify chapter and verse. After all, this is not a matter of judgement or custom & practice.

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Thanks for the helpful response.

I have put this to auditors with experience at Senior Manager or Director level within two different "big" firms; all were of the belief that only the UK group need be considered, although they became unsure when I pointed to the Companies House guidance. To be fair, the advice was given on an informal basis (these were old colleagues, and I wasn't paying for the advice). The legislation may be clear, but there is obviously a widespread (and, it seems, erroneous) belief within the profession that small UK subsidiaries don't need an audit unless the parent is listed.

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Ineligible groups
s.249B(1C)(a) CA 1985 says that the audit exemption is available to small groups provided that they are not ineligible groups under s.248(2). This is the section which deals with the exemption from preparing group accounts for both small and medium-sized groups. s.248(2) says that any such group including a public company is ineligible. So, a UK subsidiary of a group including a PLC (not necessarily listed) or foreign equivalent can never be exempt from audit, but a UK subsidiary of a small non-PLC group is exempt.

Perhaps, your colleagues were mixing up the exemptions from audit and from group accounts.

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Foreign group audit exemption
A foreign parent company has explained that in there country , they do not need to prepare group accounts or have their accounts audited. I have explained that this has no bearing on uk audit rules and the uk sub will need to be audited if it doesn't benefit from the exemption limits. Am I right, they will not give me the turnover of the other subsidiaries in the group. Can I still act, can I produce accounts and is it then upto them to get them audited if they want to/need to ?
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