Should audit-exempt companies still have an audit?

Beyond compliance: the value of an audit

For many business owners, audit exemption feels like an obvious cost saving. If the law no longer requires a company audit, why continue with one?

It’s a fair question. Recent changes to UK company size thresholds mean more businesses may now qualify for audit exemption, potentially reducing their compliance obligations. But while the decision may appear straightforward on paper, it’s worth looking beyond the legal requirement and considering what value an audit provides.

At a time when businesses are facing economic uncertainty, increased stakeholder scrutiny and growing governance expectations, many directors, shareholders and investors continue to see value in independent assurance over their financial statements.

The real question isn’t:

“Can we stop having an audit?”

It’s:

“Would our business benefit from continuing to have one?”

 

What is audit exemption?

Under the Companies Act 2006, many UK companies can claim audit exemption, meaning they aren’t legally required to have their annual financial statements examined through a statutory audit. For accounting periods starting on or after 6 April 2025, a company will generally qualify for a small company audit exemption if it meets at least two of the following criteria during the financial year:

• Annual turnover of no more than £15 million
• Gross assets (also referred to as balance sheet total) of no more than £7.5 million
• 50 or fewer employees on average

Certain companies remain subject to audit requirements regardless of size, including some regulated businesses, public companies and companies operating in specific sectors. A company’s articles of association or its shareholders may also require an audit.

Importantly, audit exemption doesn’t remove a company’s responsibility to maintain proper accounting records, prepare annual accounts and present a true and fair view of its financial position. Those responsibilities continue to rest with the directors.

 

What’s the value of an audit?

An audit isn’t valuable simply because it’s an audit.

Its value depends on quality, relevance and engagement: an auditor who understands the business, focuses on the matters that could materially affect the financial statements and communicates clearly with management and those charged with governance.

A statutory audit provides an independent opinion on whether the financial statements give a true and fair view, and have been properly prepared in accordance with the applicable financial reporting framework. However, the benefits often extend far beyond compliance.

While a company may qualify for audit exemption, that legal test doesn’t determine whether shareholders, directors, lenders, investors or a parent company would still benefit from independent assurance.

For some businesses, removing the audit will be the right and proportionate decision. For others, the cost saving needs to be weighed against the confidence, discipline and challenge that could be lost.

Six sources of value

• Trust – Greater confidence in financial reporting to support decision-making.
• Challenge – Independent scrutiny of key financial judgements.
• Control – Insight into weaknesses in financial controls and processes.
• Governance – Stronger accountability and oversight for stakeholder.
• Finance – Greater credibility with lenders, investors and buyers.
• Growth – Audit-ready systems that support future growth and reduce “first-year audit” challenges.

What does an audit actually provide?

The objective of an audit is to obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error, and to provide an independent audit opinion.

An audit offers a high level of assurance, but not a guarantee.

Rather than testing every transaction, auditors focus on areas where risk is greatest. Management remains responsible for maintaining the company’s books and accounting records, safeguarding assets and preparing the company’s annual accounts.

The audit provides an independent assessment of the information being presented to shareholders and other stakeholders.

What an audit can provide	What an audit doesn’t promise
Independent assurance over the financial statements as a whole Risk-focused testing of material balances, transactions and disclosures Challenge of significant judgements, estimates and accounting treatments Communication of relevant findings and significant control deficiencies	A guarantee that the business is financially successful or will remain viable Testing of every transaction or every internal control Certainty that every fraud, error or irregularity will be identified A replacement for effective management, governance or internal controls

How an audit builds trust and confidence

The greatest value of an audit is often the confidence it creates.

Audited financial statements can help bridge the gap between those running the business and those relying on its financial information. As businesses grow, attract investment or become part of a wider group structure, that confidence can become increasingly important.

How an audit supports key stakeholders

Depending on the business, those stakeholders may include:

• Shareholders, who want confidence that reported performance can be relied upon
• Directors, who benefit from independent challenge and stronger governance
• Lenders, who may rely on audited accounts when assessing lending decisions
• Investors and prospective buyers, who often look for additional assurance during due diligence
• Parent companies and group management, who need reliable reporting across subsidiary companies
• Customers and suppliers, who may view audited accounts as a sign of financial stability and credibility

The value of an audit often increases as a business grows and more people begin relying on its financial information.

While owner-managed businesses may have direct visibility of their finances, investors, lenders, non-executive directors and members of a wider group rarely do. Independent assurance helps those stakeholders make decisions with greater confidence.

 

Why do audit-exempt companies choose a voluntary audit?

As more small companies become eligible to claim audit exemption, management teams are increasingly asking:

“Just because we can stop having an audit, should we?”

For many businesses, the answer comes down to confidence rather than compliance.

A voluntary audit can provide independent challenge to management’s assumptions, strengthen confidence in financial reporting and identify opportunities to improve internal controls and governance processes.

The benefits are often most noticeable where:

• Lenders or investors rely on the financial statements
• Ownership and management are separated
• The business is preparing for growth, acquisition or investment
• Directors want greater oversight of financial reporting risks
• The company forms part of a larger UK or international group
• Stakeholders place significant reliance on the company’s accounts

In these situations, the discussion often moves beyond whether an audit is required and towards whether the business would benefit from the additional assurance and credibility it can provide.

 

Can an audit prevent fraud?

An audit can play an important role in reducing fraud risk, but it shouldn’t be viewed as a guarantee that fraud will be detected.

As part of the audit process, auditors assess fraud risks, evaluate controls and perform testing in response to identified concerns. This independent scrutiny can act as a deterrent and may highlight weaknesses in processes or controls.

However, fraud can be deliberately concealed through collusion, falsified documents or management override of controls.

Responsibility for preventing and detecting fraud ultimately remains with management and those charged with governance.

The strongest protection usually comes from a combination of effective controls, strong oversight, a positive culture and, where appropriate, independent assurance.

Example scenario:

A founder-led manufacturing company remains below the statutory audit thresholds but has introduced two minority investors and is negotiating a new banking facility. The board chooses a voluntary audit to give all shareholders a common, independently assured set of accounts, strengthen discipline over inventory and revenue reporting, and establish an audit track record before its expected next phase of growth. The audit doesn’t remove the need for due diligence or lender assessment, but it improves the quality and credibility of the financial information available to them.

Is a voluntary audit right for your business?

A voluntary audit may be worth considering if:

• Ownership and management are separated
• The business has external investors or minority shareholders
• The company is seeking finance or investment
• The business is preparing for a sale or acquisition
• Financial reporting includes complex transactions or significant judgement
• The company is part of a wider group
• The board wants greater oversight of financial reporting and risk
• Stakeholders place value on audited financial information
• Management wants to establish robust reporting processes before audit requirements become mandatory

The right decision depends on the business, the stakeholders relying on its financial information and the level of assurance required.

 

An audit isn’t always the only answer

A full financial statement audit isn’t always the most appropriate solution.

Depending on the objective, a business may benefit more from:

• A controls review
• An agreed-upon procedures engagement
• A specialist assurance review
• A focused review of a particular financial area

The starting point should always be the decision that needs to be made and the level of confidence required to make it.

Different stakeholders often require different levels of assurance.

 

Maximising the value of an audit

Businesses typically gain the most value from an audit when they view it as more than a compliance exercise.

To get the best outcome:

• Choose an auditor with relevant sector expertise
• Agree responsibilities and timelines early
• Share business developments, risks and strategic plans openly
• Involve directors and key stakeholders throughout the process
• Be receptive to constructive challenge
• Turn findings into practical improvements

The most effective audits combine independent challenge with commercial understanding and constructive communication.

 

Could an audit add value to your business?

Whether you’re considering a statutory audit, a voluntary audit or another form of assurance, the right approach depends on your stakeholders, objectives and reporting risks.

While audit exemption can reduce compliance costs, it doesn’t automatically reduce the need for confidence in your financial information.

For many businesses, the value of an audit lies not in meeting a legal requirement, but in providing assurance to the people who matter most.

TC Group works with owner-managed businesses, growing groups and UK subsidiaries to assess their audit and assurance requirements and to design a proportionate approach around the needs of their stakeholders. For more information, contact us today.

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FAQs

What’s a voluntary audit?

A voluntary audit is a financial statement audit that a company chooses to undertake even though it isn’t legally required. Businesses often use voluntary audits to provide assurance to shareholders, lenders, investors and other stakeholders.

What’s the small company audit exemption?

The small company audit exemption allows qualifying companies to file accounts without a statutory audit. Under the Companies Act 2006, a company generally qualifies if it meets at least two of the relevant size criteria for turnover, gross assets and employees, and isn’t otherwise excluded from the exemption.

Can shareholders request an audit even if the company is exempt?

Yes. Shareholders holding at least 10% of the company’s shares can request an audit in writing by sending a request to the company’s registered office address within the required time limits.

Do dormant companies need an audit?

In many cases, dormant companies can claim audit exemption, although companies should review their circumstances carefully to confirm they meet the relevant conditions.

Does audit exemption remove directors’ responsibilities?

No. Directors remain responsible for maintaining accounting records, preparing the company’s annual accounts and ensuring the accounts are prepared properly and present a true and fair view.

Why do investors and lenders value audited accounts?

Investors and lenders often rely on financial information when assessing risk and opportunity. Audited accounts provide independent assurance over the financial statements through an audit performed in accordance with applicable auditing standards.

How do I decide whether a voluntary audit is right for my business?

The key considerations are who relies on your financial information, the level of assurance those stakeholders require, the complexity of the business and your future plans. A professional adviser can help determine whether a statutory audit, voluntary audit or alternative assurance engagement is most appropriate.

 

Important information: This article is accurate as at 13 August 2026 and reflects the law and professional guidance in force at that date. It is intended as general information only and does not constitute legal, accounting or audit advice. The availability of audit exemption and the suitability of a voluntary audit or other assurance engagement depend on the specific circumstances. Professional advice should be obtained before taking or refraining from action.