Can My Company Avail of the Audit Exemption?

Can My Company Avail of the Audit Exemption?

In June 2024, a piece of legislation known as the  European Union (Adjustments of Size Criteria for Certain Companies and Groups) Regulations 2024, was signed into law.  

As a result of this legislative change, more companies will be able to avail of the audit exemption, as the total balance sheet and turnover thresholds for companies and groups, were increased to account for inflation.

These changes came into force on 1 July 2024 for accounting periods commencing on or after 1 January 2024. Companies also have the option to elect to apply the new thresholds for any financial year commencing on or after 1 January 2023. An eligible entity who has not yet had their 31 December 2023 financial statements prepared, could therefore be eligible to prepared non audited financial statements, without undergoing the audit process.

It is estimated that up to 15% of companies that filed audited accounts within the last 12 months, may be eligible to claim the audit exemption.

Deciding whether to claim an audit exemption involves evaluating several factors specific to every business. Here are some steps to help companies make an informed decision:

Assess Eligibility

Firstly you need to access if you are eligible for the audit exemption. The eligibility is based on thresholds for turnover, balance sheet total, and number of employees.

The company must meet at least two of the three requirements in the current year and the preceding year.

Evaluate Financial Complexity

A company that is part of a group may also be eligible to claim the audit exemption, as the group audit exemption criteria has also increased, which enables a company in a group structure to avail of audit exemption, provided the group qualifies.

In order for a group to qualify as a small group, the group must meet at least two of the three requirements (see below) in the current year and the preceding year. There are some entitles that are not eligible to avail of the exemption. Such ineligible entities include, credit institutions, insurance undertakings and entities that have transferable securities which are traded on a regulated market of any EU Member State.

If your financial transactions and structure are straightforward, an exemption might be more feasible. However, complex financial structures might still benefit from an audit.

Consider the needs of the Stakeholders

Every organisation has stakeholders and you need to determine if your investors, lenders, or other stakeholders require audited financial statements. As part of banking covenants, it is often a stipulation that the financial statements are audited; it is important that the banking covenants are fully reviewed.

Even though a company is eligible to claim the exemption,  one or more members representing at least 10% of the voting rights, can insist on an audit.  

To ensure ongoing confidence by the stakeholders in the company’s financial health, it is important that the plan to avail of the audit exemption, is discussed with all the stakeholders .

Weigh Costs and Benefits

Every organisation needs to calculate the cost savings from not having an audit and balance this against the benefits of having audited financial statements. In addition there is the administrative burden of the audit process and you need to consider the time and resources saved by not undergoing an audit process.

Risk Management

The Company’s management is responsible for the identification, assessment, management and monitoring of risk, for developing, operating and monitoring the system of internal control. An external audit process will document, evaluate and assess the internal controls over the financial period under review however, the audit is not designed to test all internal controls or identify all areas of control weakness.

In the absence of the statutory audit, the company may opt for alternative forms of assurance such as Internal Audits or Agreed-Upon-Procedures, to mitigate this risk.

Seek Professional Advice

Finally and most importantly, if you are considering availing of the audit exemption, it is important to speak with your accountant or financial advisor. They can provide tailored advice based on your specific circumstances and help you weigh up the pros and cons.

We are here to help

If you would like further information about audit exemption, please get in touch with your usual Azets advisor or a member of the Accounts and Business Advisory Services team.