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Technical helpsheet issued to help members understand when a company requires an audit under the Companies Act 2006 and potential routes to audit exemption.
This helpsheet has been issued by ICAEW’s Technical Advisory Service to help members understand when a company requires an audit under the Companies Act 2006 and potential routes to audit exemption.
Members may also wish to refer to the following related helpsheets:
The Companies Act 2006 states that a company’s annual accounts for a financial year must be audited unless the company is exempt from audit (s475). There are four potential ways to obtain audit exemption:
Each of these potential ways to obtain audit exemption contains its own requirements and conditions which are explored in the following sections.
Members of a company have an option under s476 of the Companies Act 2006 to require the company to have an audit. Where effective notice is given in accordance with this section, a company will not be entitled to claim audit exemption.
The notice must be given by:
(a) members representing not less in total than 10% in nominal value of the company’s issued share capital, or any class of it, or
(b) if the company does not have share capital, not less than 10% in number of the members of the company.
The notice may not be given before the financial year to which it relates and must be given not later than one month before the end of that year. Notice must be provided each year.
The directors of a company should also review the company’s articles and other governing documents in order to check whether they contain any specific provisions in relation to audit. A company, which otherwise would be able to claim audit exemption, may still require an audit if its articles contain such provisions.
If a standalone company (i.e. a company which is not a member of a group) qualifies as a small company in relation to a financial year (see Is a company or group small?) it may be exempt from audit in that year by virtue of s477 of the Companies Act 2006.
A company is not entitled to this exemption if it is:
Explanation of the financial services terms in the above list is available in the glossary at the end of the helpsheet Ineligible companies and groups.
A company taking this small companies audit exemption under s477 will need to include a statement on its balance sheet as required by s475. Members may wish to refer to the helpsheet Balance sheet statements for small companies and LLPs for further guidance.
A small company that is a member of a group, may also be entitled to the s477 small companies audit exemption. In addition to the requirements above for a small standalone company, a company which is a member of a group will need to consider the size of the entire group of which it is a member and whether any group member makes the group ineligible. This involves looking at those entities both above and below itself in the group, as well as those in different branches of the group structure.
Under the Companies Act 2006, s479 means that a company is not entitled to the exemption conferred by s477 (small companies) in respect of a financial year unless:
A company taking this small companies audit exemption under s477 will need to include a statement on its balance sheet as required by s475. Members may wish to refer to the helpsheet Balance sheet statements for small companies and LLPs for further guidance.
Where a company is itself a subsidiary company and its parent is established under the law of a UK, then a company may wish to consider audit exemption by parent guarantee, the requirements for which are outlined in s479A of the Companies Act 2006.
There are a large number of requirements to meet in order to claim this audit exemption. For example, the parent’s consolidated audited accounts must be filed at Companies House and all members of the company taking the parent guarantee must agree to the exemption in respect of the financial year in question. Where the consolidated accounts
ICAEW’s TECH 06/20 BL Exemption from audit by parent guarantee provides further details on the requirements and answers FAQs on the topic.
A company taking this audit exemption under s479A will need to include a statement on its balance sheet as required by s475. Members may wish to refer to the helpsheet Balance sheet statements for small companies and LLPss for further guidance.
For periods commencing prior to the end of the transition period (31 December 2020), the exemption under s479A of the Companies Act 2006 was available with a parent guarantee provided by a parent established under the law of an EEA state.
If a company is dormant, it may look to take audit exemption under s480 of the Companies Act 2006. A company is only dormant during a period in which it has no significant accounting transactions (s1169) (see Is a company dormant?).
The conditions for audit exemption are that the company:
(a) as regards its individual accounts for the financial year in question –
i. is entitled to prepare accounts in accordance with the small companies regime (see sections 381 to 384), or
ii. would so be entitled but for having been a public company or a member of an ineligible group, and
(b) is not required to prepare group accounts for that year.
A company is not entitled to this exemption if it is:
Explanation of the financial services terms in the above list is available in the glossary at the end of the helpsheet Ineligible companies and groups.
A company taking this dormant companies audit exemption under s480 will need to include a statement on its balance sheet as required by s475. Members may wish to refer to the helpsheet Balance sheet statements for small companies and LLPs for further guidance.
ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.
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ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.
ICAEW members have permission to use and reproduce this helpsheet on the following conditions:
For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas.
01 Jan 2016 (12: 00 AM GMT) First published 17 Mar 2021 (12: 30 PM GMT) Changelog created, helpsheet converted to new template 17 Mar 2021 (12: 31 PM GMT) Minor update as a result of Brexit and Companies Act amendments. 11 Nov 2021 (03: 55 PM GMT) Helpsheet reviewed - no changes. 09 Nov 2022 (12: 00 AM GMT) Amended the section headed '3. Any sized company in a UK group with parent guarantee' to make it clear that it no longer applies to EEA groups following Brexit. 17 Mar 2023 (12: 00 AM GMT) Added links to "Company size and audit exemption – complex examples" helpsheet. Other links updated.
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