Following its recent consultation, the Government published regulations on 11 September 20121 for the reform of the regime relating to audit exemption and the accounting framework. The key changes made by the new regime are as follows:

Exemption from mandatory audit: small companies and groups

Mandatory audit thresholds will be aligned with accounting thresholds for small companies (including those that form part of a larger group), allowing 36,000 more companies the opportunity to be audit exempt.

Exemption from mandatory audit: qualifying subsidiaries

The new regime will also exempt from mandatory audit a further 83,000 subsidiary companies provided that the subsidiary meets all the following criteria:

  • that it is not quoted;
  • that it is not, among other things, an authorised insurance company or banking company;
  • that its parent undertaking is established in an EEA state;
  • that its shareholders unanimously agree to the exemption from audit;
  • that its parent gives a statutory guarantee of the subsidiary’s outstanding liabilities;
  • that the subsidiary is included in the consolidated group accounts and its exemption from audit noted in the accounts; and
  • that the guarantee, written confirmation of shareholder approval and consolidated report and accounts are all filed at Companies House.

Exemption from preparing and filing individual accounts: dormant subsidiaries

Dormant subsidiaries will be exempt from the requirement to prepare and file accounts, provided they meet the same criteria, and make the same filings, as set out above in respect of ‘qualifying subsidiaries’. They will, however, still need to file an annual return.

Reporting standards

The current system will be relaxed to allow companies which currently prepare IAS accounts to transfer to UK GAAP in cases other than ‘a relevant change of circumstance’ (which is the current stipulation), provided they have not moved to UK GAAP at any time in the previous five years. This will allow companies to take advantage of reduced disclosures under UK GAAP.


The new regime (which will apply also to limited liability partnerships) will come into force for financial years ending on or after 1 October 2012.

The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (SI 2012/2301) available at: