The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 came into force on 1 October 2012 and will apply to accounting years ending on or after that date.
Announced by the Department of Business Innovation and Skills (BIS) in September, the Regulations reduce auditing and reporting requirements on SMEs by aligning mandatory audit thresholds with accounting thresholds.
Previously, companies with a turnover and balance sheet under a certain size were eligible for an audit exemption. Under the new Regulations, companies which meet two out of three criteria relating to balance sheet total, turnover and number of employees will now be able to make a commercial decision on whether or not to have a statutory audit. BIS claims this change will allow 36,000 more companies to opt out of statutory audit.
The Regulations will also exempt an estimated 83,000 subsidiary companies from audit, and a further 67,000 dormant subsidiaries from annual account filing - provided in each case the subsidiary's liabilities are guaranteed by their parent company.
The Regulations come at a time when there is huge downward pressure on audit fees. It is hoped that these changes will save companies millions of pounds in audit fees and encourage investment in Britain.