Audit exemption statement

Generally, a limited company that is classified as a small company according to Companies Act 2006 is eligible to claim this audit exemption. In other words, you are allowed to deliver unaudited company accounts to Companies House. Correspondingly, you must disclose the audit exemption statement on your balance sheet.

The audit exemption statement shall be above your director’s signatory on the balance sheet.

The standard audit exemption statement wording sounds like this.

  1. For the year ending (your company’s year end date), the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies.
  2. The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.
  3. The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.
  4. These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

The benefit of claiming audit exemption is that you put less information in your company accounts for public register. Why put less information in your company account is good? less information for your competitors.

However, you must not deliver unaudited company account if your shareholders requested an audit on your company accounts. That why in the second paragraph of the audit exemption statement state the member has not requested an audit. Your director’s signatory on the balance sheet page with that statement on it would confirm that is the case legally.

Another important document your company must deliver to Companies House is the Confirmation Statement.

If you have any questions about your limited company accounts, feel free to contact us. Our accountants would be more than happy to help you.

Auditor statement of circumstances

When your external auditor ceased to hold office, they are required to deposit a statement of circumstances at your company’s registered office. They must set out any issues relating to the cessation of the office that should be brought to the attention of your shareholders or creditors of your company. If there are no issues then state that no circumstances exist.

In the case of auditor resignation, your auditor’s statement should accompany the notice of resignation. In the event where your auditor is not seeking reappointment, their statement should be deposited at least 14 days before your general meeting where your company account is laid. If a resolution has been passed to remove the requirement for laying accounts at the general meeting then the auditor must send their notice within 14 days of your accounts being circulated to your shareholders. In all other cases, your auditor must provide their statement of circumstances within 14 days of ceasing to hold office.

Thereafter, your company must send a copy of the statement to everyone entitled to receive a copy of your company accounts within 14 days.

Court order

If your company considers the statement of circumstances to be defamatory, you may apply to the court to have the statement not to be circulated.

Subsequently, you must inform your auditor within 21 days if a court order is sought. If this time elapses and no order is sought, your company’s auditor has a further seven days to send a copy of the statement to Companies House.

If your court application is successfully made, your company must inform everyone entitled to receive a copy of your company accounts within 14 days of the court’s decision. On the other hand, if the court order fails, your auditor’s statement must be circulated within the same time frame. Concurrently, you must also inform your auditor of the court’s decision. Subsequently, your auditor has a further seven days to deliver a copy of the statement to Companies House.

The auditor statement of circumstances is a separate document to that of your confirmation statement. It does not affect your confirmation statement.

Auditor resigns from office

Auditor resigns from office before the end of the term, he/she would have to give written notice to your company. Thus, your Auditor’s appointment will end on the date when the notice was deposited at your company’s registered office. If your auditor specifies at a later date then that would the date of their official resignation.

For this purpose, it is imperative you have access to posts sent to your registered office and act promptly. Remember to notify Companies House if you would like to change your registered office address. In this case, you must complete and deliver the form AD01 to Companies House.

Statement of circumstances

Your auditor resigns from the office will only be effective if he/she provides a statement of circumstances. The statement must include details of any relevant circumstances relating to their resignation that should be brought to the attention of the shareholders or creditors.

In the event your auditor has no circumstances to report, the statement must state this fact. Once your company has received your Auditor’s notice, you must deliver a copy of it to Companies House.

Auditor request to call for extraordinary general meeting

On the other hand, your Auditor may also request that your company to call an extraordinary general meeting to consider the circumstances connected with their resignation. He/she could make such request by depositing a signed requisition with their resignation. Subsequently, you are to arrange the meeting within 21 days. The meeting must be for a date within 28 days of it being convened. Total length of the process is 49 days. Failure to do so will render your directors liable to a fine.

Auditor’s written statement

Your auditor may also request you to send their written statement relating to the resignation to all shareholders prior to the extraordinary meeting. The statement may also be sent prior to the general meeting at which your auditor’s term of office would have expired or where a replacement auditor is to be appointed. Your auditor also has the right to attend and be heard at either of these meetings.

If the statement received is too late to be included in the notice to the general meeting, your auditor can request the statement to be read out at the meeting.

Reappoint Auditor

If your auditor does not seek reappointment after the end of term at the general meeting then this does not constitute a resignation. Thus, your auditor do not require to deposit a notice at your company’s registered office. However, your auditor must still provide a statement of circumstances.

Permanent file for audit

If your company accounts are subject to audit as required by the Companies Act, you must appoint a registered auditor. The auditor will audit your company accounts and express their opinions on whether your company accounts give a true and fair view. Ordinarily, your Auditor would create a permanent file for audit for your company.

Your auditor will gather information about your company at the initial stage of appointment for their permanent file for your company. They will ask you for the information since you have to prepare, gather and provide the information to your auditor, why not you also create a permanent file for your own record. Then pass the file to your auditor to make a copy of it. This can save both yours and your auditor time.

What is Permanent file?

The permanent file usually contains documents and matters of the continuing importance of your company which will be required for more than one audit.

Generally, your Auditor would keep the following documents and records auditors in your permanent file.

Statutory material

Firstly, documents governing the conduct, accounts, and audit of your company. For example, If you are in the business is regulated by the Financial Conduct Authority (FCA), your Auditor would keep a copy of the relevant Financial Services Act that applies to your business.

The rules and regulations of your company

Concurrently, your Auditor would also need to know how your company is managed and what rules and regulations apply within your business itself. For instance, if you are a limited company, this means the Memorandum and Articles of Association. If you are a partnership, it means the partnership agreement. For sports clubs, the club rules, and so on.

Other documents of continuing importance and relevance to your auditor

  • Letter of engagement and minutes of appointment of the auditor. This is particularly important in non-statutory audits as it embodies the auditor’s instructions.
  • Trade, license, and royalty agreements; entered into by your company.
  • Debenture deeds.
  • Leases
  • Guarantees and indemnities entered into.
  • Copies of Confirmation Statement filed with Companies House.

Official business address

Your current company’s registered office address. If your registered office address is not the same as your trading address then provide all other offices and premises locations. Together with a short description of the work carried on at each branch.

An organization chart

Your organisation chart to give a snapshot of your business structure within your management teams. For example, detailed of the principal departments and sub-divisions thereof with a note of the numbers of people involved.

The names of responsible officials and staff within your organization structure. Give extra details for your accounting departments.

List of books and records

You specify the place where you keep your accounting records. You provide names, positions, specimens of signatures and initials of persons responsible for books. Additionally, your account codes and classifications as well.

An outline history of the organization

Special mention must be made of the history of Reserves, Provisions, Share Capital, Prospectuses, and acquisition of subsidiaries and businesses. There should also be a record of important accounting ratios.

List of accounting matters of importance

Accounting policies used for material areas such as stock, work in progress, depreciation, research and development expenditure in your company accounts.

Internal Controls

Notes of interviews and correspondence regarding internal control matters and all past letters of weakness.

The business structure within a group and associated companies

If your company is part of a group, you are to provide a note of the position of your company in the Group. For this purpose, a group structure would be helpful with all subsidiaries and associated companies with holdings therein.

Clients’ Internal Audit and Accounting Instructions

If you have internal audit and accounting instructions. please provide those.

Details of shareholders and directors

A list of your directors, your shareholdings, and service contracts. Usually, your Auditor can download your Confirmation Statement filed with Companies House. It would be nice you could provide so that they could verify any changes of your company officers not yet notify with Companies House.

Investments

You are to provide a list of the company’s properties and investments with notes on verification.

Company’s Advisers

A list of the company’s advisors such as bankers, merchant bankers, stockbrokers, solicitors, valuers, insurance brokers etc.

Insurance

A list of your company’s insurance

The permanent file is updated on annually and usually during the audit. Your company shall provide the information listed above to enable your auditor to complete their audit assignments.

Remember that the information in the permanent file is handled with strict confidence.

Vocabulary used in financial statements

Understanding the vocabulary used in the financial statements will help you to understand the report and figures presented in your company accounts.

Below are frequently used vocabulary you see in your financial statements and company accounts.

Accounts

Basically, Accounts normally consist of profit and loss account, balance sheet notes to financial statements and directors report. For companies registered in the United Kingdom, your company accounts must comply with the Companies Act 2006.

Tangible Asset

Generally, asset is anything that a business owns. This includes buildings, cash, furniture, and equipment. Ordinarily, tangible assets are subject to depreciation or revaluation. Furthermore, tangible assets are entitled to claim capital allowances in your company tax return.

Intangible Asset

While intangible asset is asset neither be seen or touched. For instance, goodwill, patents, trademark and copyright.

Audit

Audit is a process of verifying accounting records to ensure completeness and free from material errors. Normally, the audit is done on samples test basis.

Auditor

Auditor is an individual registered to practice as qualified auditor with the main accountancy bodies to perform statutory audit. The Auditor performs the audit must not have conflict of interests in his/her role as an auditor for your company.

The professional accountancy bodies that issue auditing certificate for practitioners include The Institute of Chartered Accountants in England and Wales (ICEAW), the Institute of Chartered Accountants Scotland (ICEAS)or The Institute of Chartered Certified Accountants (ACCA) or other recognized professional bodies in the UK.

Capital

What the business is worth? Capital for limited companies are in the form of shares invested by their shareholders.

Credit

Credit is an entry on the right side of an account ledger.

Debit

Debit is an entry on the left side of an account ledger.

Ledger

A group of accounts of similar types. For example, debtors’ ledger containing the accounts of your business customers and creditors’ ledger containing the accounts of your suppliers.

Liability

Anything that a business owes. For example, mortgage, credit card charges, loans and bank overdrafts under your business names.

Liquidator

A liquidator is a person appointed either by the court, your shareholders or your creditors. Your liquidator would perform due diligence, identify assets can be sold for cash and distribute the cash after debts are settled.

Petty cash

Petty cash is a small amount of cash for day to day small expenses in your business.

Receivables

Receivables means debts owed to your business from your customers. In other words, debtors.

Receivership

A situation where your company is in default. As a result, your lender who holds a mortgage or a charge over your company’s asset, appoint a receiver to sell the asset to repay debt.

Trial Balance

Trial Balance shows expenses on the debits and income and loans on the credits and the ledger are equal. Similarly, it presents the assets on the debits. Liabilities and share equity on the credits.

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