Audits play a crucial role in the financial health and transparency of companies. They are not just a legal requirement but also serve multiple strategic purposes. This article explores the importance of audits, the current and upcoming audit thresholds in the UK, and the various benefits audits provide beyond compliance.
What is an Audit?
An audit is an independent examination of financial statements and related records of a company to ensure accuracy and compliance with accounting standards and regulations. The primary goal of an audit is to provide an unbiased opinion on whether the financial statements present a true and fair view of the company’s financial position and performance. Audits are conducted by qualified auditors who follow established auditing standards and procedures.
Legal Requirements for Audits
In the UK, companies are required by law to have their financial statements audited if they exceed certain thresholds. As of now, a company must have an audit if it meets two out of the following three criteria:
- Turnover not exceeding £10.2 million
- Total assets not exceeding £5.1 million
- Average number of employees not exceeding 50
When assessing the above size criteria, consideration needs to be given to the size of the group in which an entity is a member. For example, if a UK entity does not breach two of the above thresholds, but is a member of a large global group, an audit will still be required in the UK.
For accounting periods commencing on or after 6 April 2025, these thresholds have been revised:
- Turnover not exceeding £15 million
- Total assets not exceeding £7.5 million
- Average number of employees not exceeding 50
These changes are designed to reduce the regulatory burden on smaller companies, allowing them to focus more on growth and less on compliance.
Beyond Compliance: The Strategic Benefits of Audits
While meeting legal requirements is a primary reason for audits, there are several other compelling reasons why companies should consider regular audits:
- Credibility with Lenders
- Requirements of Shareholder or funding Agreements
- Identifying Opportunities for Improvement and Growth
- Enhancing Internal Controls and Risk Management
- Building Trust with Stakeholders
Conclusion
While audits are a legal necessity for many companies, their benefits extend far beyond mere compliance. They play a vital role in enhancing credibility, meeting contractual obligations, identifying growth opportunities, and improving internal controls. As the audit thresholds in the UK increase from April 2025, companies should carefully consider the strategic advantages of continuing with regular audits, even if they fall below the new thresholds.
By embracing audits as a tool for improvement and growth, companies can not only ensure compliance but also build a stronger, more resilient business.
If you would like to discuss anything mentioned in this article, please get in touch with the team.
