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Audit exemption - UK subsidiary of a US company

Do we need to audit this client?

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Our client is a UK limited co, whose parent company is listed in the US . The client itself qualifies for small company exemption, and its accounts will be consolidated into parent's audited accounts (both have same year end). My question is that do we need to do an audit even though our client did not want one? Could somebody shed any light on this please or where to research? Any comments much appreciated.

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By daniel_
10th Jan 2019 17:15

Section 479A of Companies Act 2006.
The parent company needs to guarantee liabilities of sub as per s479c.
Parent company accounts need to be filed at CH along with sub.
Written resolution from members of sub seeking subsidiary audit exemption.
Include s479a statement on balance sheet of sub.

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Replying to daniel_:
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By phoesal
11th Jan 2019 08:42

Thank you so much for the information Daniel!

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By Mike Bath
15th Jan 2019 11:07

Sorry, I have to disagree with Daniel.

If the parent company is listed then it's an "ineligible group" and so audit exemption under 479 isn't available.

Even if the parent wasn't listed, 479A exemption is only available if:
1) the (immediate) parent of your subsid is established under the law of an EEA member state; and
2) the ultimate parent undertaking prepares consolidated acocunts which comply either with IFRS, or the provisions of Directive 2013/34/ EU of the European Parliament and of the Council on the annual financial statements, consolidated statements and related reports of certain types of undertakings.

If your parent undertaking is listed in the US and (therefore) consolidates under US GAAP then neither condition will be satisfied & your UK company will have an audit requirement.

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Replying to Mike Bath:
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By phoesal
15th Jan 2019 12:28

Much appreciated Mike. I had a very detailed read of the relevant sections and also spoke to ICAEW helpline. To contribute to your comment - exemption of audit applies to companies: a)it is a subsidiary AND b)its parent is established under the law of EEA states. US parent certainly doesn't meed the requirement. Therefore like you said, exemption is not available and our client needs an audit. Thanks very much!

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Replying to phoesal:
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By Jacksm19
26th Oct 2020 11:38

Check out Companies Act section 400 & 401. Although this is to do with preparing group accounts more than audit requirements, could be useful in future.

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Replying to phoesal:
By Manek Affilica
26th Oct 2020 12:44

Since the United Kingdom (UK) ceased to be a Contracting Party to the EEA Agreement after its withdrawal from the EU on 31 January 2020, is the caveat "its parent is established under the law of EEA states" extant?

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Replying to Manek Affilica:
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By Jacksm19
26th Oct 2020 12:58

Section 400 is changed so that the current exemption from preparing group accounts will only be available where the immediate parent that prepares consolidated financial statements for the group is based in the UK as opposed to being an EEA parent.

The heading in section 401 is changed so that it refers to ‘non-UK group accounts’ rather than ‘non-EEA group accounts’, i.e.:

The exemption currently available in section 401 where there is a non-EEA parent entity preparing group accounts ‘… in a manner equivalent to consolidated accounts and consolidated reports so drawn up’ is amended so that they will be drawn up in accordance with the requirements of s401 of the Act (i.e. groups with an EEA parent will be included).

Reference and credit: Steve Collings

Although I'm not sure when this was/will be in effect

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