Many business owners assume an audit only applies to large companies, but the rules are more nuanced. Whether your business needs a statutory audit depends on its size, structure, sector, shareholders and specific circumstances.
This guide explains what a statutory audit is, when a business may need one, and how audit and compliance support can help.
What is a statutory audit?
A statutory audit is an audit required by law.
It involves an independent auditor reviewing a company’s accounts and financial records to provide an opinion on whether the financial statements give a true and fair view of the company’s financial position.
The audit does not guarantee that every transaction is perfect. Instead, it provides reasonable assurance that the accounts are not materially misstated and have been prepared in line with the relevant accounting and legal requirements.
A statutory audit usually includes reviewing areas such as:
Financial statements
Accounting records
Income and expenses
Assets and liabilities
Internal controls
Supporting evidence
Significant estimates and judgements
Compliance with reporting requirements
The auditor then issues an audit report, which is included with the company’s accounts.
Does every UK company need a statutory audit?
No. Many small private limited companies are exempt from statutory audit if they meet the relevant criteria.
For financial years beginning on or after 6 April 2025, a private limited company may qualify for audit exemption if it meets at least two of the following conditions:
Annual turnover of no more than £15 million
Assets worth no more than £7.5 million
50 or fewer employees on average
For financial years beginning between 1 January 2016 and 5 April 2025, the previous thresholds apply: turnover of no more than £10.2 million, assets of no more than £5.1 million and 50 or fewer employees on average.
This means a business that was previously close to the audit threshold may need to review its position carefully depending on when its financial year begins.
When might a business still need an audit?
Even where a company appears to meet the small company exemption thresholds, there are situations where an audit may still be required.
A company may need an audit if:
Its articles of association require one.
Shareholders request one.
It is part of a group where audit exemption is not available.
It operates in a regulated sector.
It is a public company.
It is involved in banking, insurance or certain financial services.
It is required by lenders, investors or grant providers.
It has specific contractual audit requirements.
Shareholders holding at least 10% of shares, either individually or as a group, can require an audit by making a written request to the company’s registered office at least one month before the end of the financial year.
This is why it is important not to rely only on size thresholds. The wider legal, ownership and commercial position also needs to be considered.
What is the difference between a statutory audit and a tax audit?
A statutory audit and a tax audit are not the same thing.
A statutory audit is an independent audit of a company’s financial statements. Its purpose is to give an opinion on whether the accounts are materially accurate and properly prepared.
A tax audit, or HMRC enquiry, is different. This is where HMRC reviews a tax return, tax position or specific transactions to check whether the correct tax has been reported and paid.
However, good audit and accounting processes can still support tax compliance. Accurate records, properly prepared accounts and clear supporting evidence can reduce the risk of errors in business tax reporting.
What happens during a statutory audit?
The audit process will vary depending on the company, but it usually includes several stages.
1. Planning
The auditor will learn about the business, its structure, systems, risks and key financial areas. This helps identify where the audit should focus.
2. Evidence gathering
The auditor will request supporting information, such as invoices, bank statements, contracts, payroll records, stock records, loan agreements and other documents.
3. Testing
The auditor will test selected transactions, balances and processes to check whether the accounts are supported by appropriate evidence.
4. Review
The auditor will review the financial statements, accounting policies and any significant estimates or judgements made by management.
5. Audit report
Once the work is complete, the auditor issues an audit report giving their opinion on the accounts. If issues are identified, the auditor may also raise recommendations to improve controls, reporting or processes.
Why might a business choose a voluntary audit?
Some companies choose to have an audit even when they are not legally required to do so.
A voluntary audit can be helpful where a business wants to:
Increase confidence in its accounts.
Support lending or investment discussions.
Prepare for a future sale.
Improve internal controls.
Reassure shareholders or directors.
Strengthen financial reporting.
Identify weaknesses in processes.
Demonstrate good governance.
For growing businesses, a voluntary audit can also help prepare for the point where a statutory audit becomes mandatory.
What records does a business need for an audit?
Good record keeping is essential for a smooth audit. Businesses should maintain clear and complete records, including:
Sales invoices
Purchase invoices
Bank statements
Payroll records
VAT records
Loan and finance agreements
Fixed asset records
Stock records
Contracts and leases
Board minutes where relevant
Evidence supporting key accounting judgements
Strong bookkeeping and regular management accounts can make the audit process more efficient and reduce the risk of last-minute issues.
What happens if a business does not get an audit when required?
If a company is legally required to have an audit but files unaudited accounts, this can create compliance problems. Potential issues may include:
Rejected or corrected accounts
Filing delays
Penalties
Breach of company law obligations
Problems with lenders, investors or shareholders
Increased scrutiny of financial reporting
Directors are responsible for ensuring the company meets its accounting and filing obligations. Companies House guidance confirms that companies must meet the relevant audit exemption conditions if they want to file without an audit.
How Wisteria can help
Understanding whether your business needs a statutory audit is not always straightforward. The answer can depend on company size, group structure, shareholders, sector, funding arrangements and future plans.
At Wisteria, we support businesses with statutory audit, accounting, business tax and compliance services. We can help you understand whether an audit is required, prepare for the audit process, improve financial records and meet your reporting obligations.
If your business is growing, approaching the audit threshold, or unsure whether it qualifies for audit exemption, it is worth reviewing your position before your year end.