As of 1st October 2024, significant changes to audit thresholds have been implemented, impacting thousands of small and medium-sized businesses (SMEs).
Over 132,000 businesses are now exempt from mandatory audits due to these new rules, offering potential cost savings and a reduction in administrative burden.
But while fewer businesses will face compulsory audits, does that mean you should forget about audits entirely? Absolutely not.
Let’s break down what these changes mean for your business, the benefits of voluntary audits, and why financial transparency remains crucial even if audits are no longer mandatory.
What Are the New Audit Thresholds?
The government’s aim with these changes is to reduce the regulatory burden on SMEs and encourage business growth. As of October 2024, the new thresholds for audits are as follows:
- Micro Business: Less than £1 million turnover, fewer than 10 employees, and less than £500,000 in gross assets.
- Small Business: Less than £15 million turnover, fewer than 50 employees, and less than £7.5 million in gross assets.
Previously, if your business had a turnover of more than £10.2 million, gross assets exceeding £5.1 million, or 50 or more employees, you were required to undergo a statutory audit. Now, the bar is higher, meaning more businesses are exempt.
Pros of These Changes: Reduced Administrative Burden
For many SMEs, the most immediate advantage of these changes is the reduction in compliance costs. According to the HMRC Survey Compliance Cost Report 2023-2024, businesses faced growing costs of complying with audits and other statutory financial requirements. In the last year alone, businesses spent £651,000 on compliance costs—a 16% increase compared to the previous year
For SMEs already grappling with overheads like staffing, taxes, and operational expenses, the removal of the mandatory audit requirement can free up resources for reinvestment into growth or improve cash flow.
Moreover, audits are not just costly in monetary terms; they also require time and effort from management and employees. For many small businesses, this time could be better spent focusing on core operations rather than managing administrative tasks.
The Flip Side: Potential Risks of Reduced Oversight
The risks of reduced financial oversight from skipping mandatory audits can be significant, especially for businesses looking to attract investors or secure loans.
Without an audit, there is a chance of diminished financial transparency, which is critical for maintaining trust with stakeholders. Investors and lenders often rely on audited financial reports as a safeguard to ensure the company’s financial health and integrity. Without this independent verification, businesses might struggle to build credibility, making it harder to attract funding.
Additionally, audits play a crucial role in identifying financial risks, detecting errors, or even preventing fraud. Without this safeguard, there’s a chance that financial mismanagement might go unnoticed, which could harm the company’s long-term sustainability(
This is why, even if your business is exempt from a statutory audit, opting for a voluntary audit can still be a valuable tool to ensure compliance and maintain confidence among investors and lenders.
Why Voluntary Audits Still Matter
Even if you’re no longer required to conduct a statutory audit, there are several reasons to consider continuing with voluntary audits.
Here’s why:
- Maintain Financial Discipline
A voluntary audit can help maintain high standards in financial management and internal controls. Regular audits give you a clearer picture of your financial health, allowing you to spot discrepancies or inefficiencies before they escalate. - Boost Investor Confidence
If you’re looking to raise capital or secure financing, an audit provides external validation of your financial statements. Investors and lenders appreciate the independent assurance an audit brings, increasing their trust in your business. - Prepare for Future Growth
As your business grows, you may once again fall into the statutory audit threshold. By maintaining regular audits, even voluntarily, you’ll ensure a smooth transition when audits become a requirement again. - Mitigate Risks
Audits can help identify risks—such as fraud or financial misstatements—that could otherwise go undetected. By addressing these issues early, you can prevent costly errors and safeguard the long-term success of your business.
How Should Your Business Prepare?
The new thresholds have come into effect for financial years starting on or after 1st October 2024, meaning businesses should prepare now.
The first step is to review your current reporting obligations. Will your business be exempt from audits under the new rules?
If so, it’s crucial to consider whether continuing with a voluntary audit might still be beneficial.
At Accounts Direct, we understand that every business is unique. Whether you’re exempt from mandatory audits or need help preparing for a voluntary one, we’re here to guide you through every step of the process.
Is Skipping Audits the Right Move?
While the recent changes to audit thresholds offer cost savings for small businesses, it’s important to weigh the pros and cons carefully. While you may not be legally required to have an audit, keeping one could be a strategic move that enhances your financial discipline, fosters trust, and prepares you for future growth.
At Accounts Direct, we recommend discussing your audit needs with a professional who can provide tailored advice.
Get in touch with us today, and we’ll help you navigate these new audit thresholds, ensuring your business remains on solid financial footing.