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Jordans FAQs: Exemption from audit for subsidiary companies

13th Jan 2014
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I understand that exemption from audit can be claimed for certain subsidiary companies – how does this work?

The exemption was introduced by section 479a of Companies Act 2006 and applies to accounts for financial years ending on or after 1 October 2012.   This permits subsidiary companies to claim exemption from audit, provided specific conditions are met.   The company must be a subsidiary of a parent established in an EEA state, all shareholders of the subsidiary must agree to the exemption being claimed, the subsidiary must be included in consolidated accounts drawn up by the parent (which must also disclose that the subsidiary has taken advantage of the exemption) and the parent must give a guarantee concerning the debts of the subsidiary company in the form prescribed by section 479C.  A subsidiary is not able to claim s.479a exemption from audit if it was, at any time within the relevant financial year a listed company or a banking or insurance company.

The guarantee covers all liabilities that exist in the subsidiary at the balance sheet date, whether recognised or not.  Depending on the activities of the subsidiary, it could be risky for a parent company to give this guarantee and legal advice should be sought before doing so.   There may also be implications under the Listing Rules where a subsidiary is less than 100% owned by a listed parent, which may require the transaction to be treated as a class 1 transaction. 

The guarantee (in the form of Form AA06 for a company or Form LL AA06 for an LLP), together with written notice of agreement by the parent company that it consents to the exemption from audit for the subsidiary in respect of the relevant financial year, must then be filed at Companies House along with the parent’s group accounts before the filing deadline for the accounts. 

For more information, visit Jordan's official website.

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