The Government recently announced a 50% increase in the UK small and medium-sized enterprises company thresholds for turnover and gross assets, which consequently affects audit requirements.
These changes aim to modernise the UK’s corporate reporting system, reduce administrative burdens, and support businesses in their reporting obligations. For many, this will be welcome news.
Outline of Changes and Potential Impacts
Planned Threshold Changes
A table summarising the changes in audit thresholds:
Predicted Impact and Benefits for SMEs
It is estimated that around 132,000 SMEs will no longer be required to have an audit due to these changes. This shift will simplify financial reporting requirements, yielding several benefits, including:
- Saving time and resources
- Redirecting funds typically allocated for audits to other business development areas
- Supporting overall business growth
Additionally, around 5,000 large companies will be reclassified as medium-sized, allowing for more balanced reporting. Approximately 13,000 medium-sized businesses might drop into the small-sized business category, benefiting from audit exemptions and further simplified reporting. Furthermore, 113,000 small-sized businesses will move into the micro entity classification, which offers even more simplified reporting options.
Reduced Transparency
However, these changes could pose challenges. The removal of audits and reduced transparency in financial reporting might harm confidence among stakeholders, including investors and lenders. SMEs can opt for voluntary audits to mitigate this, but the cost of maintaining audits should be balanced against the benefits of increased financial surety and stakeholder confidence.
Further Proposals
The government plans further consultations later in the year, which may include:
- Removing low-value, obsolete, or overlapping requirements from the Directors’ Report and Directors’ Remuneration Report
- Making it easier for companies to issue digital annual reports
- Addressing technical issues in the audit regulatory framework
- Amending the definition of a medium-sized company for reporting purposes
- Increasing the employee threshold from 250 to 500
- Providing exemptions for medium-sized companies from including a strategic report in the annual report
- Exempting smaller public interest entities from audit tendering and rotation requirements
Next Steps for SMEs
These changes are set to take effect for periods starting on or after 1 October 2024. If you have any questions about how these changes might impact your business or whether you need an audit for the current or next financial year, you can contact Xeinadin’s Audit team by completing the form below. Alternatively, reach out to your usual Xeinadin advisor who will be happy to assist you.
