Does your business need a statutory Audit?

With Audit thresholds changing this year and greater scrutiny of business finances, Associate Director Andrew McKay answers: does your business need a statutory Audit?

The UK government recently published new legislation relating to the UK company size thresholds for statutory Audit. My Consilium colleague Brian Thomson initially discussed these changes in his article ‘UK company size thresholds for statutory Audits are changing‘.

In this article, we will look at how the new statutory Audit thresholds will be applied, including the transitional provisions, and examine the benefits of continuing with an Audit even if your company now meets the criteria for Audit exemption.

What are the changes to UK statutory Audit and company size thresholds?

The changes to UK statutory Audit and company size thresholds from 6 April 2025 can be summarised as follows:

* i.e. total assets

The revised thresholds apply to financial years beginning on or after 6 April 2025. For Audit exemption, the key criteria for Small Companies is that Audit exemption and small company thresholds are aligned. A company must meet two of the above three criteria for Small Companies to qualify for statutory Audit exemption.

Does your business need a statutory Audit? A worked example

Company A is a stand-alone company with a June year-end. In the year to June 2025 its key figures are as follows:

As this period commenced before 6 April 2025, the current Audit thresholds apply. As Company A breaches the thresholds for turnover and average number of employees, it qualifies as a medium company. It will therefore be required to have a statutory Audit for the year ending 30 June 2025.

For the year ended 30 June 2026, Company A has the following figures:

This period commenced after 6 April 2025 therefore the new Audit thresholds are in play. As Company A meets two of the three criteria, it qualifies as a small entity and consequently for Audit exemption concerning this year.

Normally to qualify for Audit exemption, Company A would have to meet the criteria as small in relation to both the year to 30 June 2026 and the year to 30 June 2025 due to the “two year rule”. However, this is where the new transitional provisions included within the legislation apply.

How will exemption from statutory Audit differ between 2025 and 2026?

Although Company A breached the small company thresholds in the year to 30 June 2025, it is now allowed to apply the revised thresholds when determining its size for the year to 30 June 2026. Under the new thresholds, Company A qualifies as a small company for both financial years 2025 and 2026. Therefore, it can claim statutory Audit exemption for the year ended 30 June 2026.

This example is provided for illustrative purposes only. The situation can be further complicated by factors such as whether the business is part of a group.

Notwithstanding, these changes will mean more companies now qualify for Audit exemption. However, despite these exemptions, there are many good reasons for business owners to consider undergoing voluntary Audits even when their company does not breach the audit thresholds.

What are the benefits of a voluntary Audit?

1. Audited accounts give banks and investors confidence

Banks and investors lending to your business need assurance that it is financially sound. While they may not always require Audited financial statements, they often do. Thus, having an Audited set of accounts can give potential investors and lenders more confidence in your figures.

2. Audited accounts can make a business more attractive to buyers

Any prospective buyer of your business will take confidence from the fact that the figures have been audited. It also demonstrates that the business has a positive attitude towards compliance and transparency.

3. Changes to FRS 102 may push companies back above the threshold

Changes to FRS 102 concerning lease accounting will require all entities to capitalise operating leases on their balance sheet. Given that thresholds are based on gross assets, these changes could increase the size of the company requiring it to undertake a statutory Audit. When looking at your company’s Audit eligibility, it is important to consider any adjustments arising from the changes to FRS 102 regarding leasing.

4. An Audit helps improve financial reporting

An external Audit involves a qualified accountant examining your company’s financial statements to ensure they are accurate and fair. This includes accounting records, internal controls, and other relevant information that the accountant will use to form an opinion on the fairness of the financial statements.

5. Audits help increase management accountability

Your management team or individual Managing Director is responsible for the accuracy and fairness of your company’s financial statements. It can, however, be difficult for management to be objective when reviewing their work. An external Audit can therefore provide a level of objectivity that management cannot.

The auditor will review management’s assertions about the financial statements and will challenge any information that they believe to be incorrect or misleading. This can help to prevent fraud and financial irregularities.

6. Avoid failing out and back into the Audit regime

If your business would now be exempt under the revised Audit thresholds but is expecting to grow to a level above the new thresholds shortly, it may make sense to continue with an Audit in the intervening period. Whilst there may be some short-term cost and time savings, if the business then breaches the statutory Audit threshold again the auditors will need to perform work on the figures that were not audited in previous years to gain comfort over the opening balance sheet figures. This is much more difficult to do retrospectively and could lead to additional time and effort as well as increased costs for an Audit.

7. External Audits help reassure shareholders

For directors and shareholders not involved in the day-to-day running of the business, an independent Audit can give them the confidence that the company is functioning effectively and performing well financially.

8. An external Audit improves internal systems and controls

An external Audit can help identify any weaknesses in your company’s internal controls. The auditor will make recommendations for improvement, and business owners/management can implement these recommendations to benefit the company.

The increased statutory Audit thresholds offer presumptive cost relief for many SMEs at a time when costs continue to rise. However, business owners must weigh up the potential benefits of exemption against the long-term advantages of maintaining rigorous financial oversight via voluntary Audits.

Specialist statutory Audit and advisory services for SMEs

At Consilium, we specialise in supporting owner-managed businesses and entrepreneurs with expert compliance and advisory services. We are trusted advisors to business owners, providing statutory Audits, and proactive insights to help them build better businesses.

For advice on preparing for upcoming statutory Audit threshold changes or to discuss any of the points raised in this article, contact Andrew McKay.

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Andrew McKay is a qualified Chartered Accountant with the Institute of Chartered Accountants of Scotland (ICAS). With extensive Audit experience across a range of industries including pharmaceuticals, transportation and hospitality, Andrew oversees Consilium’s Audit department and manages a portfolio of major clients.