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Client believes audit not due - responsibility?

Client believes that group size is small but insufficient information obtained to prove this

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We have a new client - a UK ltd company which is owned by a non-EU group. The year ends are all April.

The UK subsidiary was audited for the 2019 year (and previously) on the basis of it being a subsidiary of a medium sized group with a non-EU parent.

The information I have for the 2019 audit indicates that the accounts for the group were only finalised up to April 2018 at the time. That was fine because even if the 2019 group size was small, the two year rule meant that it must have been an audit either way.

For the April 2020 year, the information coming from the parent is lacking and they seem to take an eternity to file accounts. The director of the UK sub is unsure as to group size for 2019 and 2020 and appears to be having trouble extracting this information from the group.

If the group qualified as small for 2019 and again for 2020, the UK sub won't need an audit for the 2020 year but does this need to be based on finalised and filed accounts?

Notwithstanding that, the UK director thinks the group has taken a battering economically in the past two years so thinks it is smaller and wants to proceed on this basis, but I'm slightly sceptical about this.

Apart from the obvious "should we act" question, where do we stand and what action would others take where a client either cannot obtain or doesn't push particularly hard to obtain the information to properly determine group size and arrives at the conclusion that an audit is not required as it's likely small? 

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By Calculatorboy
19th Sep 2020 14:44

Size for audit is based on facts in the accounts, if it later transpires when work is in progress that there are errors in management accounts, and it may not qualify , you will need to inform directors an audit is required

Just set it out in engagement letter before you act and get a payment on account , then bill periodically ,dont expose yourself to un billed costs , it sounds a dogs dinner.

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By thevaliant
19th Sep 2020 16:20

In theory, it is for the client to decide if they need an audit or not.
I think our engagement letter for accounts jobs say that if we determine that an audit is required we will discuss options with the directors. It doesn't go any further than that though.

As either an ICAEW or ACCA firm, if you truly believe a client requires an audit and they fail to request one, I think your position is untenable [1] and you should resign the appointment. You should make an incoming accountant aware of the audit requirement.

[1] In the one occassion I ran into this, the ICAEW firm knew the client had entered the audit regime, but despite warning the client the client refused to entertain an audit. The ICAEW firm did not resign, but instead a set of accounts was filed without an audit, prepared by the ICAEW firm (and also without an accountants report).

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