Audit Exemptions for UK Subsidiaries

Small groups

Subsidiary companies registered in England and Wales can claim exemption from the statutory requirement for an audit if the group they are in meets the definition of a ‘small’ group.

This requires that the group they are a part of is smaller than at least two of the limits below:

‘Net’ means after consolidation adjustments have been applied, and a group can qualify by meeting either the gross or net requirements or a combination of both.

Medium and large groups

Where the group is not considered small, an audit exemption can still be claimed by a subsidiary if it is dormant, or if its parent undertaking is established in the UK or another EEA state. To take advantage of this exemption, a number of other conditions must also be met:

• All members of the subsidiary must agree to the audit exemption;
• The parent undertaking must give a guarantee against all outstanding liabilities of the subsidiary;
• Audited consolidated accounts for the parent undertaking must be filed along with the subsidiary’s accounts;
• Specific disclosures are required in both the parent’s consolidated accounts and the subsidiary’s accounts.

We believe the exact scope of the guarantee is uncertain, since it is subject to legal interpretation and ultimately case law. However, it can be assumed to include all the subsidiary’s actual liabilities at the balance sheet date and may also include contingent liabilities.

Exceptions

It should be noted that certain types of company are unable to make use of this exemption or the small group exemption due to their nature, including:

• Public companies;
• Companies engaged in certain specialist activities such as insurance or banking;
• Trade unions and employers’ associations.

For more information please contact info@arnoldhill.co.uk

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.