Company A is an individually small UK company with a large parent in a non-EEA country. Therefore usually require an audit (according to the next paragraph). However they are a very insignificant component and according to ISA 600, for components that are not significant components, the group engagement team (not us) shall perform analytical procedures of these components at group level, as opposed to an actual audit of the not significant component. What would be the correct approach here, considering the parent is non-UK based? Can we follow ISA 600 and not perform an audit of the UK subsidiary?
"If the company is part of a group, or has been at any point during the year, we have to look at the size of the largest group it’s part of. Then we can determine if the company can claim audit exemption by assessing the group’s size. We need to include not only any subsidiaries, but also any companies that sit above or alongside of it. All companies in the group, including overseas companies, are taken into consideration. And if that group doesn’t qualify as small, the company in question needs an audit."
Many thanks in advance for your time & efforts.
Replies (7)
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It's company law in the UK that overrides the ISA 600 requirement. So, if you determine that a UK statutory audit is required for the sub, the group auditors do not need to pay any heed to that if, as you say, the subsidiary is an insignificant component.
If an audit is required, the lack of group reporting requirement would be good all round in terms of the hassle and potential fees involved.
No problem. Given the parent is non-EEA you can't even make use of the parent/subsidiary guarantee which we make use of to good effect with clients in similar situations
John is right in that the small entity needs an audit and ISA600 is a red herring in trying to avoid this.
I have found this often to be the case when things are done by overseas entities.
US company (large) buys a UK company, and then can't understand why UK entity needs an audit and to FILE these accounts at Companies House when the equivalent US requirement is basically nothing (the only thing they need to do is file the IRS tax return).
It can, and has, created difficulties for us as both US parent and UK client are unhelpful. UK entity doesn't want it, and US entity won't lift a finger to get them to comply. Often, agreement of intercompany balances is difficult as US entity won't respond unless threatened with UK entity being qualified.
Additionally, US entity has reported its consolidated results BEFORE UK entity audit starts. To them, the UK entity is a rounding error.
I hope you wont mind me asking a supplementary question here but it does seem that you people know your stuff.
We have a potential new client - a 100% owned UK subsidiary ltd company of a USA large parent. The UK co traded quite a few years ago but has not traded for the last 5 years. Previous accountant has prepared accounts and submitted to Co House but an audit has never been carried out.
We are not auditors.
Should audits have been carried out and if so, what should we do from here if we take on the client?
Thank you
It sounds like the UK sub is dormant and so it's typical to take the dormant exemption from the audit requirement s480 I think. This can be overruled by the parent