A statutory audit is a legally mandated review of the accuracy of a company's financial statements and records. In the UK, statutory audits are governed by the Companies Act 2006, which sets out the criteria and requirements for companies that must undergo this process.
What is a Statutory Audit?
A statutory audit involves an independent auditor examining a company's financial statements to ensure they provide a true and fair view of the company's financial position. The auditor assesses the accuracy and completeness of the financial records, checks for compliance with accounting standards, and identifies any areas of concern or potential fraud.
Requirements for a Statutory Audit
Not all companies are required to have a statutory audit. The need for an audit depends on the size and nature of the company. A company must have a statutory audit if it meets any two of the following criteria:
- Annual Turnover: More than £10.2 million
- Balance Sheet Total: More than £5.1 million
- Number of Employees: More than 50 on average
Additionally, certain types of companies are always required to have an audit, regardless of their size. These include:
- Public companies
- Subsidiary companies (unless they qualify for an exemption)
- Authorised insurance companies
- Companies involved in banking or issuing electronic money
- Investment firms under the Markets in Financial Instruments Directive (MiFID)
- Undertakings for Collective Investment in Transferable Securities (UCITS) management companies
- Companies with shares traded on a regulated market
Audit Exemptions
Small companies may be exempt from statutory audits if they meet at least two of the following criteria:
- Annual turnover of no more than £10.2 million
- Balance sheet total of no more than £5.1 million
- 50 or fewer employees on average
However, even if a company qualifies for an audit exemption, shareholders holding at least 10% of the shares can request an audit. This request must be made in writing and submitted to the company's registered office at least one month before the end of the financial year.
The Audit Process
The statutory audit process typically involves several key steps:
- Planning: The auditor meets with the company's management to understand the business and its financial reporting processes.
- Fieldwork: The auditor examines the financial records, tests internal controls, and gathers evidence to support the financial statements.
- Reporting: The auditor prepares a report detailing their findings, including any issues identified and recommendations for improvement.
- Review: The company's management reviews the audit report and takes necessary actions to address any concerns raised.
Benefits of a Statutory Audit
While statutory audits are a legal requirement for certain companies, they also offer several benefits:
- Enhanced Credibility: An independent audit provides assurance to stakeholders that the financial statements are accurate and reliable.
- Improved Financial Controls: The audit process can help identify weaknesses in internal controls and suggest improvements.
- Compliance: Ensures the company complies with relevant laws and regulations, reducing the risk of legal issues.
- Investor Confidence: Audited financial statements can boost investor confidence and make it easier to attract investment.
Conclusion
Understanding the requirements and benefits of a statutory audit is crucial for UK companies. Whether mandated by law or requested by shareholders, a statutory audit provides valuable insights into a company's financial health and helps maintain transparency and trust with stakeholders.
How can we help?
Simpson Wreford LLP is dedicated to providing exceptional statutory audits tailored to meet your specific needs. Our team of experienced auditors ensures that your financial statements are accurate, compliant, and transparent. We meticulously review your financial records, identify any areas of concern, and provide insightful recommendations to enhance your financial controls. By partnering with us, you can be confident that your statutory audit will be conducted with the highest level of professionalism and integrity, helping you maintain compliance and build trust with your stakeholders. Let Simpson Wreford LLP support your business in achieving financial clarity and success.
Contact us now on 020 8317 6460