Audit exemptions to be extended from 1 October

The government will press ahead with its plan to align mandatory audit thresholds with accounting thresholds for small companies from 1 October.

In a press release issued on 6 September, the Department of Business Innovation and Skills confirmed that small businesses will not need to subject their accounts to an audit if they meet two out of the three qualifying criteria for small company accounts:

  • Fewer than 50 employees
  • Balance sheet total: no more than £3.26m
  • Turnover below £6.5m.

Subsidiary companies will be let off mandatory audits if their parent companies guarantee their liabilities. Dormant subsidiaries - up to 67,000 in number - will no longer need to prepare and file annual accounts, provided they receive a similar guarantee.

In another related reform, companies that currently prepare their accounts under international standards will be able to change their accounting framework to UK GAAP provided they have not moved to UK GAAP in the previous five years.

Log into AccountingWEB to read a full run-down of the reforms set out in the BIS  summary of consultation responses.

 

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Comments

Not so fast    7 thanks

cwca | | Permalink

The BIS press release refers to accounting years ending on or after 1st October and this has been picked up by a number of professional news wires.

However the written statement delivered to Parliament and included in Hansard for Thursday 6th September at column WS27 (and which can be viewed at http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120906/wmst...) refers to accounting years beginning on or after that date.

I have sent an email to the department for clarification

John Stokdyk's picture

Good spot!

John Stokdyk | | Permalink

Thanks for picking that anomaly up for us, cwca, and sorry to have been misled (not for the first time) by an official press releaes.

We may have to wait until the statutory instrument appears to confirm the arrangement fully, but I'll try to see if the BIS press department can unravel the mystery.

As we were    3 thanks

cwca | | Permalink

The regulations introducting the changes have now been published (SI 2012 No 2301) and confirm that the changes will apply for accounting years ending on or after 1st October as generally publicised (Regulation 2). Hansard is therefore incorrect.

LLP's

nigelrmorris | | Permalink

Similar change to LLP's ?

 

petew's picture

Change of year end

petew | | Permalink

As the regulations refer to accounting periods ending on or after 1 October 2012, presumably a company could change their year end from say 30 September to 31 October to avoid the requirement for an audit this year?

 

miketombs's picture

Balance sheet total    2 thanks

miketombs | | Permalink

I also wish they would start using the phrase "total assets" instead of "balance sheet total". Most people would naturally think of the balance sheet total as the figure at the bottom of the balance sheet. The Companies Act specifies it as the total assets.

what is balance sheet total?

Harry04 | | Permalink

what is balance sheet total?

is it the net assets or share capital plus reserves?

thanks

petew's picture

Balance sheet total

petew | | Permalink

Is gross assets, i.e. fixed assets plus current assets.

what is balance sheet total    1 thanks

Stephanie Henshaw | | Permalink

The Act defines "balance sheet total" as "fixed plus current assets" so it is total assets, not net assets. That has always been the definition but the use of "balance sheet total" often catches people out.

Change of year end

Abster | | Permalink

Alternatively you could just extend the date by 1 day to 1st October and still produce accounts to 30 September.

Parent company guarantee

marlin | | Permalink

Does anyone know how this guarantee should be given? Do we know any details about this?

pembo's picture

at last

pembo | | Permalink

at last some common sense getting rid of all those property investment companies at a stroke.Should have been done years ago when the thresholds were increased so much.Anyone got any ideas how you can pursuade golf club committees to agree that an audit is really not necessary and put it forward at the AGM. Tried every argument to no avail.

All subsidiaries or just small subsidiaries?

andyrhb | | Permalink

If a subsidiary exceeds the size thresholds can it still be "let off mandatory audits"?

Audit Exemption - draft statutory instrument

stevetalbot | | Permalink

Do you have a link to this draft legislation - I can't find it?

Second Year Rule

Yuill12 | | Permalink

Will this void the second year rule for those companies audited last year?

Audit Thresholds

Hadfields | | Permalink

Total Balance Sheet.

So the Company with over 50 employees and a factory at £4.000,000 less a Mortgage of "£2m still has to have an Audit.  How stupid can you get!!

petew's picture

Second year rule?

petew | | Permalink

Never heard of this?

An audit is an audit based on the current year limits and has no baring on previous years.

Audit Standards

Hadfields | | Permalink

Steve Collings refers to the High Standards required regarding Audits.  Has he forgotten that the Banks and Building Societies had "Audits"

julia wigram's picture

Large group

julia wigram | | Permalink

If the group is large, are audit exemptions still available?

Audit of Golf Clubs

Briar | | Permalink

Hi Pembo,

see http://www.icaew.com/en/members/regulations-standards-and-guidance/audit/audit-regulations-definitions?letter=a. Here, unincorporated bodies are not included. So, one does not have to be a registered auditor to "audit" an unincorporated golf club. As the golf club rules were probably written many years ago, they probably meant independent scrutiny of the accounts by a qualified accountant when using the word "audit" and the members do not now realise the modern meaning. Tell the members that if they change the rules, the "scrutiny" (or in modern parlance, the "independent examination" fee) will be less than the "audit" fee. That's what I did. It worked. And now I don't need to be registered as an auditor (Hurrah!!, no more compliance visits)

What about extending the

Supertorben | | Permalink

What about extending the accounting period from 31st March to 31st October? - Would that be ok?

Subsidiaries exempt from audit

paulwakefield1 | | Permalink

Seems to me to be of limited use as I can't imagine auditors being happy to sign off the parent company accounts unless the subsidiaries are all immaterial. Taken to its logical conclusion you could have a massive group with a pure holding company with only the latter being audited so long as it is not listed. Could be an interesting qualification! And how much worth would the necessary guarantees be?

But I haven't read the legislation in depth yet so I may have missed the point.

sluglet's picture

Traing Course Yesterday

sluglet | | Permalink

Supertorben wrote:

What about extending the accounting period from 31st March to 31st October? - Would that be ok?

Totally by chance I was on a training course yesterday afternoon and this came up. 31-Mar year end can only be extended to 30-Sep BUT you are allowed to do accounts up to +-7 days of year end. So it is permitted to extend y/e from 31-Mar to 30-Sep and then do accs to say 05-Oct and take advantage of the change. 

Good Idea

North East Acco... | | Permalink

Why not implement for all accounts signed off after 1st October 2012?

If its a good idea bring it straight in no messing.

Many thanks, Sluglet.

Supertorben | | Permalink

Many thanks, Sluglet.

pembo's picture

problem is

pembo | | Permalink

Noted thanks Briar. Tried all of that....problem is that normal market forces don't exist for clubs like this as they know what all the other ones pay and there is as ever some cowboy willing to undercut. Ends up with them being done semi pro bono so the proper saving we would normally pass on is greatly reduced. Got round my problem by passing them to my partner ! Hurrah...only 2 audits to go and no worries.

Excuse my ignorance, but just

Supertorben | | Permalink

Excuse my ignorance, but just to clarify the situation -  form AA01 is filed with a date of 30th September,

but the accounts are prepared with a date of , say, 1st October and filed at Companies House with

that date on them? If this is so I expect there will be hundreds of company y/e extensions.

Signing off date

amb.hentons | | Permalink

North East Accountant wrote:

Why not implement for all accounts signed off after 1st October 2012?

If its a good idea bring it straight in no messing.

So, you have done the site visit and the review work. Signing one day later to aviod the need for an audit opinion - will the client stll pay for this unnecessary work now?

They tried the signing off date rule in the past - caused issued for accountants doing work and not getting paid for it.

 

Plc

AWilson3339 | | Permalink

Unlisted Plc parent with a number of small subsidiaries, will the subs still need auditing?

 

 

Tired of Audit

Mallock | | Permalink

I'm seriously tired of all the work that goes in to maintaining audit registration and look forward to the day when audits are restricted to AIM companies or PLC's.

For once I would be pleased to follow the lead of the USA.

On the Golf Club issue I have persuaded two to remove the need for audit on the basis that if they strengthen their systems of control they can review and monitor the risk areas themselves more regularly and save the audit fee - I explained that their regular checks were much more likely to find something wrong than my sample. They now have many fewer cash/bar differences than they did when under audit.

Link to draft legislation; change of year

cwca | | Permalink

The draft statutory instrument can be found at the link in my earlier post. For confirmation it can be found online at

http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120906/wmst...

Also is it sensible to jump into changing the year end just for this one short term and limited purpose - I would have thought that step should only be made for genuine commercial purposes, and once it's done you are stuck with it for another 5 years. Not to mention the hassle with changing corporation tax accounting periods etc.

sluglet's picture

Probably not as useful as one might think

sluglet | | Permalink

Supertorben wrote:

Excuse my ignorance, but just to clarify the situation -  form AA01 is filed with a date of 30th September,

but the accounts are prepared with a date of , say, 1st October and filed at Companies House with

that date on them? If this is so I expect there will be hundreds of company y/e extensions.

Lots of companies do accounts for 52/53 week periods so Companies Act allows +- 7 days either side of date on AA01 so Companies House "shouldn't" have any problems with AA01 & accounts having slightly differing dates. In practice how many companies will extend year end to avoid audit is not clear. I suspect a lot of 31-Mar audits have already been done. Of those not done I suspect a lot already have time clocked up on them for planning, stocktake attendance, etc plus there could be costs to clients if they have to do stocktakes again at 1-Oct and you have to remember that once you've changed the year end you're stuck with it for the next five years. 

In essence I don't think there are many companies out there with 31-Mar yr ends in a position to take advantage of this this year but certainly worth thinking about for clients with say 30-Sep yr end. 

Yes, that is correct

jonbryce | | Permalink

You can file accounts to a date 7 days either side of the date on AA01.  Tesco for example prepares accounts to the last Saturday in February.

odd organisations audit

David Gordon FCCA | | Permalink

I have "Done" Parochial church council, sikh temple, synagogue, club, and charity "Audits". My experience is these organsations need practical audits more than anybody else. Especially if there is a bar on the premises. What you may do is, rather than an "Official" statutory audit, agree a list of formal checks to be done.

RJ&Co's picture

Ironically.............    1 thanks

RJ&Co | | Permalink

The change now brings into reality what a lot of people (including some accountants) thought the rules already were, due to the confusing "double negative" terminology used.  The fact is the that new rules mean you can pass just two out of the three tests to forgo an audit, whereas  before you needed to pass all three, a situation which was much misunderstood.  Even now I suspect some people are reading this thread and saying to themselves "So whats changed?  The thresholds seem to be the same as they were.........."

Richard Joseph

Charity audits

jonbryce | | Permalink

Bear in mind that the audit thresholds for charities is much lower than for companies, and they have not changed.

Dormant company exemption

Piglett | | Permalink

What's confusing me is the exemption from dormant companies filing accounts. Reading the BIS document it seems that they will have to be included in consolidated accounts to benefit, so presumably small groups with dormant subs are faced with the choice of either preparing consolidated accounts or continuing to file the dormants.

Or am I reading this wrong?

julia wigram's picture

Subsidiary audit exemptions    1 thanks

julia wigram | | Permalink

julia wigram wrote:

If the group is large, are audit exemptions still available?

I did some more research and hope the following summary is helpful re subsidiary exemptions:

New rules for Subs audit exemption

Subsidiaries (normal definition applies) of any size can be exempt if:

  • Parent is EEA State member (EU+)
  • All members agree
  • Parent guarantee to sub
  • Sub included in consolidated accounts
  • Parent must disclose in its accounts that the sub is not audited (Probably the hardest one to get in practice!)
  • Declaration filed with Registrar of Companies
  • Audited parent accounts filed at Registrar of Companies

This is fairly complicated - suggest look at the rules in new s479A/B/C of CA 2006  - http://www.legislation.gov.uk/uksi/2012/2301/regulation/7/made

New rules for dormant subsidiaries

No requirement to prepare accounts  BUT All rules for audit exemption above are also required

Therefore probably easier to rely on audit exemption under s380 (small company dormant) and prepare dormant accounts rather than not prepare.

Old Greying Accountant's picture

OK, so ...

Old Greying Acc... | | Permalink

... small UK subsidiary of large US parent will still need an audit?

So - just to be clear about how to get out of an audit....

MBK | | Permalink

It can be done for any current year end from 31st March 2012 or later (if you would now qualify for exemption under the new test) by:-

1: Extend the year end by changing the accounting refernce date to 30th September (if it isn't already)

2: Have a board meeting and resolve to make up the 2012 accounts to 1st October for this year only.

.. er, that's it.

This is because the SI refers to "financial year". A financial year is defined by CA 2006 S390 as starting on the day after the last day of the previous financial year and ending on the next ARD or a date determined by the directors being within seven days either side of the ARD.

So there is actually no need to extend the ARD to 1st October at all.

Does anybody disagree?

 

 

julia wigram's picture

Large group

julia wigram | | Permalink

Old Greying Accountant wrote:

... small UK subsidiary of large US parent will still need an audit?

Yes  :-(

Update...

Paul James | | Permalink

Heard any reply to your email to clarify the position?

jon_griffey's picture

Practicalities

jon_griffey | | Permalink

 

The BIG BIG problem I foresee is making sure that the parent includes the required wording in its accounts.  We act for say a UK subsidiary with a 31 Dec 2012 year end.  Large parent company is based in say France and agrees to audit exemption.  Large listed group so tight timescales.  On that  basis we don't attend the stock take, issue bank letters etc and prepare audit exempt accounts and get them signed off.  Some weeks or months later the group audit is done by group auditors and group accounts/audit gets signed off.  Guess what?  The required wording did not appear in the group accounts and so we are not entitled to audit exemption.  We have to go back to the client and say that we now need an audit and of course we did not attend the stock take etc and so may need to qualify........

julia wigram's picture

re Practicalities sub exemption

julia wigram | | Permalink

@ Jon

I agree entirely - it is our main concern with the subsidiary exemptions.  I think we will need to specifically cover it in our engagement letters in these cases - & in letter of representation from management on the non-audited accounts.

Old Greying Accountant's picture

...

Old Greying Acc... | | Permalink

... 

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