The Audit And Accounting Thresholds

The Audit and Accounting ThresholdsLegal noticeAAT has provided the information in this section on the basis that you will undertake the necessarychecks and verifications to make sure that you are legally entitled to undertake the work.AAT cannot provide any assurance that the information in this section is accurate and precise orsuitable for your particular needs or those with whom you deal and neither AAT nor any AATemployee will be liable on any basis for the consequences of your using it.It is your responsibility to undertake all the necessary checks and verifications to make sure that youare legally entitled to undertake the work by consulting the relevant body or authority, the relevantlegislation or authoritative text, a lawyer or solicitor.1. IntroductionThe main restriction on the work that can be undertaken by members of AAT is the audit threshold.Anyone can prepare the accounts. However, if the company requires an audit then that must besigned off by a “registered auditor” as this is a protected legal title where a breach may result inimprisonment, fine or both.AAT is not a supervisory body for the purpose of auditing. Therefore, if you are interested in becomingan auditor then please contact one or more of the following auditing bodies: Association of Chartered Certified Accountants (ACCA) Association of International Accountants (AIA) Institute of Chartered Accountants in England and Wales (ICAEW) Chartered Accountants Ireland (CAI) Institute of Chartered Accountants of Scotland (ICAS)Ordinarily, sole traders and partnerships (not including Limited Liability Partnerships) do not submitaccounts to Companies House and therefore would not require an audit. However, the sole trader orpartnership may be a member of a professional or regulatory body (e.g. Financial Conduct Authorityor Royal Institute of Chartered Surveyors) that requires the sole traders or partnership to appoint aregistered auditor.2. Audit ThresholdFor financial years that begin on or after 1 January 2016, private limited companies may qualify for anaudit exemption if it has at least 2 of the following: an annual turnover of no more than 10.2 million assets worth no more than 5.1 million 50 or fewer employees on average.A private limited company could satisfy the criteria above and still be required to have an audit –please refer to the section headed Exceptions below.AAT is a registered charity. No. 1050724

3. Accounting ThresholdThe regulations apply in respect of financial years beginning on or after 1 January 2016 whereby theaudit threshold and the accounting threshold have become the same for private limited companies.The requirements for a private limited company that is also a charity are different. Please refer to thesection headed Charities below.4. ExceptionsAs with every rule there are exceptions. A company that qualifies for an audit exemption may still berequired to have an audit if required by shareholders holding at least 10% of the share capital of thatcompany (Companies Act 2006 section 476).The company must have an audit if at any time in the financial year it has been: a public limited company (unless it is dormant) a subsidiary company (unless it qualifies for an exception) an authorised insurance company or carrying out insurance market activity involved in banking or issuing e-money a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings forCollective Investment in Transferable Securities (UCITS) management company a corporate body and its shares have been traded on a regulated market in a European stateThere are further exemptions that may need to be considered for specific types of organisations:1. Friendly and Industrial and Provident Societies – these organisations may be exempt from therequirement to have an audit. To determine whether your client’s organisation requires an audityou may need to:a. refer to the “The Friendly and Industrial and Provident Societies Act 1968 (AuditExemption) (Amendment) Order 2006”b. undertake further research to find out if there is any subsequent legislation that affects theexemption criteria.2. Solicitors – according to Rule 34 a registered auditor is required to prepare the accountant’sreport to the Solicitor’s Regulation Authority.3. Authorised Professional Firms holding client money or client assets and regulated by theFinancial Conduct Authority – are required to appoint a registered auditor.5. Member of an ineligible groupA company cannot prepare and submit small company accounts if it is, or was at any time during thefinancial year a member of an ineligible group, where any of its members is: a public company a body corporate (other than a company) whose shares are admitted to trading on a regulatedmarket in an EEA State a person (other than a small company) who has permission under Part IV of the FinancialServices and Markets Act 2000 to carry on a regulated activityAAT is a registered charity. No. 1050724

a small company that is an authorised insurance company, a banking company, an e-moneyissuer, a MiFID investment firm or a UCITS management company a person who carries on insurance market activity.Companies which would otherwise qualify as small, but which are members of ineligible groups canstill take advantage of the exemption from including a business review (or strategic report) in thedirectors’ report prepared for members and from filing the directors’ report at Companies House.6. Other forms of reportingResidential service charge accountsIn some cases the lease refers to an audit or under the Landlord and Tenant Act 1985 (whichspecifies statutory auditor) in which case an audit must be undertaken. In other cases, StatutoryInstrument 2009/512 approves the Royal Institute of Chartered Surveyor code Service ChargeResidential Management Code that refers in section 7.13 to the requirement of TECH 03/11Residential Service Charge Accounts that specifies in Appendix J: Qualifications for reporting onservice charge accounts as the following: Association of Authorised Public Accountants Association of Chartered Certified Accountants Institute of Chartered Accountants in England and Wales Institute of Chartered Accountants in Ireland Institute of Chartered Accountants of Scotland.The list does not include all the auditing bodies (i.e. AIA) and does not include all the Charteredbodies (e.g. CIMA and CIPFA).Client Money Protection schemesThe bodies listed on gov.uk (and below) either refer to an audit requirement or being a member of aRecognised Supervisory Body (RSB) 1: Client Money Protect Money Shield Propertymark RICS audit Safeagent UKALA Client Money Protection.AAT is not a Recognised Supervisory Body (RSB) or Recognised Qualifying Body (RQB) for thepurposed of auditing.1Companies ActsAAT is a registered charity. No. 1050724

7. CharitiesCharity reporting and accounting: the essentials November 2016 (CC15d) contains the accountingand reporting requirements for both company and non-company charities for financial years beginningon or after 1 November 2016 and to all charitable incorporated organisations.It is important to note that the charity must follow the higher standard of external scrutiny required byeither the statutory framework or the governing document.Charity law requires those charities with a gross income of more than 25,000 to have some form ofexternal scrutiny (Independent Examination or audit) of their accounts.An independent examination can be carried out by any person who is independent, has the necessaryknowledge and experience and provided the gross income of the charity is 250,000 or less.If the gross income of the charity exceeds 250,000, then only persons who are members of one ofthe listed bodies can undertake the examination. AAT is a listed body and a member undertaking anIndependent Examination of a charity of any size would need to be licensed in this area, unless theyare providing the service on a voluntary basis.The charity must have an audit for financial years ending on or after 31 March 2015 if either its grossincome exceeds 1m or, its gross income exceeds 250,000 and the aggregate value of assets(before deduction of liabilities) exceeds 3.26 million. The examiner should also check the governingdocument and ask the trustees whether or not an audit may be required for another reason.8. Memorandum and Articles of AssociationAdditionally, it is important to check that the memorandum and articles of association of the companydo not contain any clauses stating that the company must be audited. If they do contain an auditclause and the company would otherwise qualify for an exemption, then the shareholders would needto pass a resolution to remove or appropriately amend that clause.9. Raising financeSome companies that would otherwise be exempt from an audit may still be required to have an auditby the lender (banks, building societies, investment companies, business angels etc) as part of a loanor finance arrangement.It is therefore important to discuss this with your client to ensure that this does not become an issue.10. SummaryA person cannot become a registered auditor and carry out an audit by virtue of AAT membership.Therefore, the member needs to establish whether or not the organization requires an audit.If the company requires an audit then that must be signed off by a “registered auditor” as this is aprotected legal title where a breach may result in imprisonment, fine or both.AAT is a registered charity. No. 1050724

11. InaccuraciesThe audit and accounting requirements for individuals and organisations have changed significantlyover recent years. So, if you find any inaccuracies or omissions in the above guidance then pleaseemail your comments to AAT at aleem.islan@aat.org.ukENDAAT is a registered charity. No. 1050724

The Audit and Accounting Thresholds . AAT is a registered charity. No. 1050724. 3. Accounting Threshold The . regulations apply in respect of financial years beginning on or after 1 January 2016 whereby the audit threshold and the accounting threshold have become the same for private limited companies. The requirements for a private limited company that is also a charity are different. Please .