Audit exemption part 3 - Eligibility & balance sheet statements
In the final of this three-part series, Anne Cowley ACA considers what makes a company ineligible for an audit exemption and sets out the balance sheet statement requirements.
The small company audit exemption, discussed in part 1 of our series, isn’t available for all types of company – for instance, public companies, insurance companies and many finance-related companies such as banks cannot qualify. (See the full list in the Companies Act 2006, s. 478.)
A small company must not have been any of these at any time during the year in question. For example, if an otherwise small public company re-registered as a private company during a year, it would need an audit for that year, despite being a private company at the year end. It would not, however, need an audit in the following year.
If a company was part of an ineligible group at any time during the year, it cannot take the small companies audit exemption. To identify whether the group is ineligible, look at the largest group the company is part of.
A group is ineligible if it contains certain types of company. An ineligible group is defined similarly to an ineligible company, but with some differences (see CA 2006, s. 479). In particular, a group is ineligible if it contains a traded company, defined in CA 2006, s. 474 as a company any of whose transferable securities are admitted to trading on a European regulated market.
Not all European markets are regulated, and checking whether the specific market is regulated or not is necessary. You can do this via the European Securities and Markets Authority website. However, keep an eye on changes arising from Brexit, as recently published draft legislation proposes to change this to refer only to UK regulated markets from exit day.
The balance sheet statement
Finally, to be audit-exempt, a company must include a statement on its balance sheet in which the directors confirm that:
the company is entitled to take the exemption
the members (shareholders) have not required the company to obtain an audit
the directors acknowledge their responsibilities for
ensuring the company keeps accounting records
preparing accounts which give a true and fair view
Without this, it cannot claim an audit exemption – and its accounts are likely to be rejected by Companies House.
If a company files its accounts at Companies House electronically, example wording is given upon filing. This could be:
“For the financial year ending (dd/mm/yyyy) the company was entitled to the exemption from audit under section 477 of the Companies Act 2006 relating to small companies. The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.
“The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.”