One of the duties of a UK company director is to ensure that the financial statements filed on public record with Companies House are correct. This includes correctly determining whether the financial statements of the UK company require an audit.
A common misconception is that, because the parent company financials are being audited and the auditors have determined the UK is immaterial to that audit, the UK financial statements do not require an audit. This is not the case.
The audit requirements in the UK are admittedly unclear, with a number of advisors advising companies they do not need an audit when they do. The requirements state that all private limited companies require an audit unless they qualify for one of the exemptions.
Assuming that the activities of the UK company or any group member are not ineligible, the subsidiary of a non-EEA company will only be able to avoid a UK audit if, on a consolidated basis, the worldwide group meets two out of three of the following criteria in the current and previous financial years:
- less than £10.2m in global revenue
- less than £5.1m in global gross assets
- fewer than 50 global employees.
In the worst cases, we have seen companies file for an initial public offering before realising that the last three years of UK financial statements have been filed incorrectly, and did require an audit.
Clearly this adds significant cost and stress at a time when the parent company finance team has other things to think about.