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Audit Exemption

If you use a limited company to run your business, one of the most difficult tasks you can face is dealing with the annual audit of the company and its accounts.

Thankfully most small companies can avoid this particular difficulty by availing of Audit Exemption. By doing so, they become exempt from the need to have an annual audit.  

Can my company avail of Audit Exemption?

Yes - if your company is one of the estimated 96% of companies that are eligible for it, and if it complies with a number of conditions. Now read on...

What is an Audit?

An audit is an indepth examination, by a registered auditor, of a company’s accounts and financial affairs. It involves a detailed examination of the company books and records, and a review of the estimates, policies, and judgements used in preparing the accounts. 

At the conclusion of the audit, the auditor prepares a formal report setting out their findings. 

In recent years, audits have become more and more complex and stringent. Auditing standards apply equally to small owner-managed companies and to large concerns with huge resources. As a result, owners of small companies can find the annual audit to be both a difficult and an expensive exercise.

What are the Conditions for Audit Exemption?

A limited company can enjoy an exemption from an annual audit if:

1. Its annual Turnover is below €7.3 million

2. The total value of Fixed and Current Assets on its Balance Sheet is below €3.65 million

3. The average number of its staff in a given year is 50 or less.

4. The company's Companies Office (CRO) filing record is fully up to date, and it has filed its last annual return on time.

5. The company is not 

   1. a company "limited by guarantee", nor

   2. a holding or subsidiary company, nor

   3. a bank, insurance, management or investment company.

The company must meet all these conditions, both for the current financial year, and the previous year.

For eligible companies, annual accounts must still be prepared and filed these with the Companies Office, Revenue Commissioners etc. However these accounts need not be subjected to a formal audit. This normally will save the company the expense of additional audit fees and paperwork.

Can we Lose our Exemption?

Yes. A company can lose audit exemption at any time, if it breaks any of the above conditions. In such cases the company must appoint an auditor and commission them to complete a statutory audit.

What happens if we File Late?

If your company files its CRO return late, it automatically loses its audit exempion.

Audit exemption is only available if the company has filed its Companies Office returns on time, both for the current year and the previous year. 

A company that files a late return is therefore penalised on the double. First it must undergo an audit for the current year, and it must repeat the exercise the following year. 

This makes it essential for company directors to ensure that they file on time each year.

Must we still keep Proper Books & Records?

Yes, directors of audit-exempt companies must still comply with company law, including the keeping of proper books and records, and the preparation of annual accounts that comply with accounting standards and the requirements of the Companies Acts. 

If a company fails to keep proper records and/or its accounts are deficient the company and its directors can face investigation by the Office of the Director of Corporate Enforcement (ODCE) and may also face criminal prosecution in the courts.

Can we Forego the Exemption?

A company may forego its entitlement to exemption if it needs to prepare audited accounts to provide to a bank, grant agency or for another purpose. 

Audited accounts may be also be needed to conclude the sale of a business, to obtain trade credit facilities or a revision of its corporate credit rating.

What is the Accountant’s Role?

Although audit-exempt companies no longer have to appoint an auditor, most such companies will still opt to have their accounts and annual returns prepared by a firm of practising accountants. A practising accountant who is a member of, and is regulated by, one of the major accounting bodies can prepare the accounts in full compliance with accounting standards and relevant company law.

An Accountant will normally provide an accountants' report for the company confirming that they have prepared the accounts on behalf of the company on the basis of the information provided to them.

Does Exemption affect our Tax Returns?

The audit exemption does not affect the company’s obligation to prepare and file an annual Corporation Tax (CT1) return with the Revenue Commissioners. 

The annual CT1 return must include certain financial information extracted from the company accounts. This applies regardless of whether an audit is completed.

Finally, what should we do?

If your company is not availing of this exemption, and it is eligible, you should consider carefully why it is not doing so. 
Audit exemption will save you time, effort, worry and money.

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