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News - 1 October 2012

Changes to Audit Exemptions

There are to be some significant changes to audit exemptions coming into effect on 1 October 2012.

The Department for Business Innovation and Skills (BIS) published the response to the Consultation on Audit Exemptions and Change of Accounting Framework  (06/9/12) which confirmed that a set of new rules was to be introduced in respect of audit exemption for companies and LLPs.

It was announced that dormant subsidiaries could be exempted from the requirement to prepare and file accounts at Companies House and that entities that currently prepare accounts under International Accounting Standards would be subject to more relaxed rules for switching to UK GAAP.

The Government then laid before Parliament Statutory Instrument 2012/2301 that introduces the new regulations by amending Companies Act 2006 in respect of accounts for financial years ending on or after 1 October 2012.  

As far as audit exemptions are concerned, the main changes introduced by the new rules include the alignment of audit thresholds to accounting thresholds for small companies, so that a company will be able to claim audit exemption if it qualifies as small by meeting two out of three criteria for turnover, total assets and number of employees.

Similar changes have been applied for group companies that will be able to claim exemption if they are a member of a group qualifying as small by meeting two out of the three criteria. Additionally a new exemption is specifically available to subsidiaries of any size controlled by an EEA parent and meeting a number of conditions

Current UK rules state SMEs must both have a maximum balance sheet total of £3.26m and less than £6.5m turnover to qualify for an exemption. The new regulations mean SMEs will be able to obtain an exemption if they meet two out of three criteria relating to balance sheet total, turnover and employing no more than 50 staff.

This change will allow 36,000 companies to choose not to have an audit. In addition, another 67,000 dormant subsidiaries will no longer need to prepare and file annual accounts, provided they receive a guarantee of liabilities from their parent company.

Peter Ham, Audit Director of ABDS comments:
“The new provisions bring UK legislation more in line with the exemptions available under the EU’s 4th Company Law Directive and, according to BIS, the effect of the amendments to Companies Act 2006 will be that of making audit exemption available to a further 119,000 companies.”

If you are unsure and need any help and advice on the new Audit Exemptions, contact Peter Ham or Lavinia Newman to discuss how ABDS can help.

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