As you’ve likely heard, changes to audit thresholds based on business size and turnover are due to come into effect. 

While these changes were originally announced by the previous government, they are proceeding as planned under the current Labour administration.

As providers of expert auditing services, Williamson & Croft have been keeping a close eye on these developments. Here’s what we know about the audit threshold changes and how they could impact your business.

What are the new thresholds?

The UK government has announced changes to the financial thresholds that determine company size classifications. This is significant because these are the thresholds which ultimately determine whether a company requires statutory auditing.

The new thresholds for determining company size are:

Micro-entities: Turnover threshold increased from £632,000 to £1 million

Small companies: Turnover threshold increased from £10.2 million to £15 million

Medium-sized companies: Turnover threshold increased from £36 million to £54 million

The new thresholds for statutory auditing are:

Following the changes to company size, a company may be exempt from statutory audit if it meets at least 2 out of 3 of these new criteria:

  • Annual turnover of no more than £15 million  – Increased from £10.2 million
  • Total assets of no more than £7.5 million – Increased from £5.1 million
  • 50 or fewer employees – Unchanged

These changes essentially mean that more companies will now fall into the small size bracket, potentially exempting them from statutory audit thresholds which are required of medium sized companies. 

If you’re curious whether your company may now meet the new audit exemption criteria, the expert auditing team at Williamson & Croft will be happy to provide you with their best guidance.

When do these threshold changes take effect?

These changes took effect from 1st October 2024. 

Potential impact on UK businesses

These changes were instituted by the Department of Business and Trade in order to alleviate smaller size businesses from the rigorous reporting burden associated with auditing. These changes are expected to exempt around 132,000 businesses from statutory auditing. 

While this might exempt a business from statutory audits, it may still be worth considering a voluntary audit. The potential advantages of auditing can help bring clarity to growing businesses as well as:

Internal controls – Audits often help identify weaknesses in internal controls. Without a statutory audit, businesses should ensure they have robust internal processes to mitigate financial risks.

Growth planning – If your business is approaching the new thresholds, it’s wise to plan ahead. Consider how you’ll manage the transition to requiring a statutory audit as your business grows.

Business sale – Even if you’re exempt from statutory audits, you might still need one. For example, when seeking a business valuation for a sale, independent auditors may be required to reassure potential buyers.

What’s next for audit reform? 

Wondering what the new government means for auditing? The new Labour government has signalled that audit reform remains a priority. 

Key developments on the horizon include the establishment of the Audit, Reporting and Governance Authority (ARGA). This is set to replace the Financial Reporting Council. This new regulator is expected to have broader powers to enforce audit standards. 

Labour has also pledged to pass legislation granting ARGA statutory powers, addressing criticisms of delays under the previous administration. 

If you need help getting audit-ready or want to better understand where your business sits in these new audit thresholds, get in touch. The accounting experts at Williamson & Croft will be glad to assist.