Statutory Audit - Definition, exemptions and benefits

When a business reaches a certain point, a statutory audit is required. The audit needs to be conducted by an independent and qualified auditor and is a legal obligation.

The statutory audit must be carried out for every year that a company is not exempt. It aims to provide an opinion on whether the financial statements issued by the organisation are free from errors (or material misstatement).

The audit eligibility criteria are set out in the UK government's Companies Act 2006. The law states that a company needs a statutory audit if it meets any two of the following criteria:

• turnover of more than £10.2 million
• balance sheet total of more than £5.1 million
• more than 50 employees

While some companies in the UK are exempt as a result of not breaching the above thresholds, some companies may still require an audit, such as some UK subsidiaries of foreign parent companies.

This is because the parent company may require an audit for consolidation purposes, or due to legal or regulatory requirements in their own country. It's important for companies in these situations to seek professional assistance to ensure they comply with all necessary audit and reporting requirements

The audit report must be accessible to the company's shareholders and available at the company's annual general meetings. The report must also be filed with Companies House.

Statutory audit exemptions

Not every company requires a statutory audit. The following are exempt:

• Dormant companies (that have not traded during the financial year)
• Small companies, which must have two of the following criteria:
  • a turnover of less than £10.2 million
  • a balance sheet total of less than £5.1 million
  • fewer than 50 employees.

Companies still need to prepare financial statements, even if they are exempt from the audit. A qualified accountant can help ensure your financial statements are done properly.

What is the difference between an internal audit and a statutory audit?

While sounding similar, an internal audit and a statutory audit have some key differences.

An internal audit is carried out by a company's own employees (hence "internal"), while an independent auditor does the statutory audit.

How to choose an auditor for your statutory audit

An auditor needs to be a member of a recognised supervisory body such as:

• Institute of Chartered Accountants in England and Wales (ICAEW)
• Association of Chartered Certified Accountants (ACCA)

An auditor with experience working with companies of the same size, complexity and industry as the company that they are auditing is also beneficial.

Read more: What does an independent auditor do?

The Shorts Audit Promise

The partnership between an organisation and its auditor should be built on trust, support, and collaboration. The auditor should be genuinely interested in the business and its plans for the future. They should invest their time and knowledge in helping the business achieve its goals.

That is why the Shorts Audit Promise is built on seven key principles:

• All of our audits are Partner-led
• We offer real value for money
• Overall focus on quality
• Meaningful advice at a strategic level
• International reach for businesses that operate globally
• A sensible approach to audit, not a scattergun approach
• Experienced team, with continuity throughout the relationship

These principles are the foundation of all our audit engagements. We believe that by following these principles, we can provide all of our clients with the best possible audit experience.

• Read more: Audit failure – why it happens and how to prevent it