What is a statutory audit?

Statutory audits are a legal requirement for many companies to ensure that financial statements represent a true and fair view of the company’s financial performance. Audits can feel overwhelming — from knowing whether your company needs a statutory audit to ensuring that you’re compliant — it can seem as though there are many boxes to tick.

At Rayner Essex, our audit service guarantees peace of mind, as our team of experts ensures compliance and offers suggestions for improvements.

What exactly is a statutory audit?

A statutory audit is an independent examination of a company’s financial statements, making sure that they present a true and fair view of the company’s financial performance and position at a point in time. A statutory audit is designed to ensure that the financial statements are free from material misstatement, whether due to fraud or error. Audits are designed to give confidence to the users of the financial statements such as the shareholders or external investors.

An auditor will also review the company’s Director’s Report and Strategic Report, along with accounts disclosures to ensure they are both consistent and compliant with accounting standards and the Companies Act. The directors are responsible for the preparation of the financial statements, however, as part of the audit, the auditor ensures that any wording in the accounts reflects the true position of the company and represents a fair description of the company at the balance sheet date. .

Why are statutory audits important?

Statutory audits are vital for companies to establish compliance and credibility. If a company’s financial statements aren’t true and fair or certain regulatory requirements aren’t being met — this can severely damage your reputation and even lead to significant fines.

Statutory audits give shareholders assurance that a company is compliant with accounting laws, meets statutory audit requirements, discourages  fraud and that financial statements are accurate. Statutory audits serve as a confidence booster for investors and shareholders, attracting further support for the company.

A statutory audit will also make recommendations on the implementation of systems and controls which can improve internal processes.

Does my company need an audit?

A company is legally required to have a statutory audit of its financial statements in the UK if it breaches two out of the three thresholds:

1. Annual turnover must be under £15.0m
2. Total assets must not exceed £7.5m
3. Total employees must be 50 or less

There is a two year rule in that a company will only require an audit in the second consecutive year that the thresholds are breached.

There are some instances whereby even if the company doesn’t breach the thresholds they may require an audit, such as:

• If the company is part of a medium/large sized group
• If shareholders who own at least 10% ask the company to have an audit
• If the company’s articles require the company to have an audit

Companies House lists various other entities that must have an audit regardless of size such as a PLC, and MiFID investment firms.

What are the benefits of statutory audits?

Statutory audits shouldn’t just be seen as a compliance requirement; there are also plenty of benefits for your business:

• Earn credibility — when a company is seen as credible, it attracts further investment, promotes a positive image to customers and fuels growth. A statutory audit is proof that your company is credible.
• Catch and fix errors — an external auditor will catch any material errors or omissions in your accounts, helping you to maintain accurate financial records.
• Minimise the risk of fraud — employees can conduct scams that’ll damage your company’s reputation. A statutory audit independently checks records, potentially catching fraudulent activity and makes employees think twice before working unethically.
• Improve financial systems — when conducting an audit, the auditor will examine your current financial systems and controls. They can recommend improvements to help efficiency and ensure accurate records.
• Comparable financial statements — a statutory audit ensures that financial statements can be compared to prior periods as it’s been confirmed that they are accurate and reliable. This enables you to see improvements and make informed financial decisions.

How often should statutory audits be conducted?

A company that requires a statutory audit must have it once a year for every year they are not exempt. This ensures that financial statements are true and fair from one year to the next. Once your financial year-end date has passed, you have nine months to complete your statutory audit, which is due to be submitted to HMRC and Companies House at the same time as your annual accounts filing deadline.

Rayner Essex offers a wide range of audit services and our partner-led approach ensures that you receive expert care and advice. If you have any questions or would like a chat about your audit requirements, then please contact Lucy Ghawss or Laura Manning who will be happy to help. Alternatively, please complete the form below and we will be in touch.