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Auditors - GBA4

May 2008 Version 14 - As modified by the Companies Act 2006

When reading these guidance notes, you need to be aware of the following:

• Some (but not all) of the provisions in the Companies Act 2006 have come into force.  Therefore, some provisions in the Companies Act 1985 remain relevant. We have tried as far as possible to make it clear throughout these notes which Act applies. If you would like to find out more you may wish to visit our website at www.companieshouse.gov.uk where you can find out which provisions in the respective Acts are in force. Our website also contains a link to the BERR (The Department for Business, Enterprise and Regulatory Reform) website http://www.berr.gov.uk/bbf/co-act-2006/index.html where you can find further information. Some provisions in the new Act are subject to transitional arrangements. We will as far as possible explain these in this guidance and give details on our website.

• There are two further stages in the implementation of the Companies Act 2006 scheduled for October 2008 and October 2009. We will update any guidance notes affected by those implementations at the time. You may wish also to keep an eye on our website where we will publish more information as the implementation process continues so you can access the most up to date information.

• Until October 2009, these guidance notes apply only to companies formed in Great Britain (England, Wales and Scotland). The separate system in Northern Ireland is then scheduled to merge into a single system for the whole of the United Kingdom

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An auditor is a person who makes an independent report to a company's members as to whether its financial statements have been properly prepared in accordance with the Companies Act 1985 or Companies Act 2006 accordingly. The report must also say if a company's accounts give a true and fair view of its affairs.

Most companies are required to have their accounts audited - see question 2 below.

2. Must all company accounts be audited?

No. If they qualify for exemption and wish to take advantage of it, dormant companies and certain small companies do not have to have their accounts audited. To qualify for audit exemption as a small company, the company must:

• qualify as small;
• have a turnover of not more than £5.6 million; and
• have a balance sheet total of not more than £2.8 million.

For a charitable company to qualify for total audit exemption, it must qualify as small, its gross income must not be more than £90,000 and its balance sheet total must not be more than £2.8 million (£1.4 million for financial years ending on or before 30 March 2004).

Charities with a gross income between £90,000 and £250,000 and a balance sheet total of not more than £1.4 million qualify for partial exemption.

NOTE: For accounting periods starting on or after 6th April 2008 there is no longer a particular category for audit exempt charitable companies. They will qualify for audit exemption in the same way as any other company.

Dormant company audit exemption may be claimed by a limited company that has not traded during a financial year, and provided it meets certain other criteria. See our booklet, 'Dormant Companies'. Dormant companies do not need to appoint auditors and can deliver very basic accounts to Companies House. More information about audit exemption for dormant companies and small companies is available in our booklet, 'Accounts and Accounting Reference Dates'.

Audited accounts must be delivered to Companies House if a company falls into any of the following categories:

(a) A parent company or subsidiary undertaking (unless dormant for the period during which it was a subsidiary) except where the group:

• qualifies as a small group or would qualify if all the bodies corporate in the group were companies;
• the turnover for the whole group is not more than £5.6 million net or £6.72 million gross; and
• the combined balance sheet total is not more than £2.8 million net (£3.36 million gross).

• a public company or body corporate which (not being a company) has power under its constitution to offer shares or debentures to the public;
• a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity; or
• a person who carries on insurance market activity.

(c) A person who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity (other than an appointed representative whose scope of appointment is limited to activities that are not regulated activities – see below).

“Regulated activity” does not include:

• arranging regulated mortgage contracts;
• assisting administration and performance of a contract of insurance;
• advising on regulated mortgage contracts; or
• dealing as agent, arranging deals in investments or advising on investments - where the activity concerns relevant investments that are not contractually based investments.

Please note: For financial years ending on or after 31 December 2006, (c) no longer applies. Instead, a member is ineligible if it is an authorised insurance company, a banking company, an e-money issuer, a Markets In Financial Instruments Directive (MIFID) investment firm or a UCITS management company.

(d) A company which carries on insurance market activity.

(e) An appointed representative within the meaning of s.39 of the Financial Services and Markets Act 2000.  This does not apply for financial period ending on or after 31 December 2006.

(f) A public limited company unless the company is dormant. See our booklet 'Accounts and Accounting Reference Dates'.

(g) A special register body or an employers' association under the Trade Union and Labour Relations (Consolidation) Act 1992.

(h) A company where an audit is required by a member or members holding at least 10% of the nominal value of issued share capital, or holding 10% of any class of share or - in the case of a company limited by guarantee - 10% of its members in number.

3. How is a company auditor appointed?

The directors appoint the first auditor of the company. The auditor then holds office until the end of the first meeting of the company at which its accounts are laid before the members. At that meeting the members of the company can re-appoint the auditor, or appoint a different auditor, to hold office from the end of that meeting until the end of the next meeting at which accounts are laid.

However, private companies can pass a resolution not to lay accounts before the members in a general meeting. If this is done, then the auditor has to be re-appointed, or a new one appointed, at another meeting of the company's members that must be held within 28 days of the accounts being sent to the members.

Private companies can also pass a resolution dispensing with the need to appoint an auditor every year. If that happens, the auditor already appointed remains in office without further formality until a resolution is passed to re-introduce annual appointment or to remove him or her as auditor. For more information on resolutions, see our two booklets relating to 'Resolutions' (Companies Act 1985 or Companies Act 2006).

4. What does an auditor do?

The auditor will check the reports, accounts and accounting records of the company and prepare a report for the company's members.

The auditors’ report must include:

• an introduction identifying the accounts that were the subject of the audit and the financial framework that has been applied in their preparation (i.e. whether UK GAPP or IAS as adopted for use in the EU).
• a description of the scope of the audit identifying the accounting standards used in the audit.
• a statement as to whether in the auditors’ opinion the accounts have been properly prepared in accordance with the Companies Act (and, if appropriate, Article 4 of the IAS Regulation) and if they give a true and fair view of the companies financial affairs.
• if they are of the opinion that the directors’ report is inconsistent with the accounts, a statement of that fact.
• the auditors’ report may be either unqualified or qualified and must include a reference to any matters to which the auditors’ wish to draw attention by way of emphasis without qualifying the report.

Please note: For accounts beginning on or after 1 April 2005 the audit report must in all cases state whether, in their opinion, the information given in the directors’ report is consistent with the accounts, not only if the information is not consistent.

• a report on the auditable part of the directors’ remuneration report and whether it was properly prepared in accordance with the Companies Act; and
• whether the operating and financial review (OFR) is consistent with the accounts and whether any matters came to their attention which in their opinion were inconsistent with the operating and financial review.

The auditors’ report delivered to the registrar must be signed by the auditors. For financial years beginning on or after 1 January 2005, the auditor’s report must also be dated.

5. Are there any exemptions from stating the auditors name on the auditors report?

No, but for accounting periods starting on or after 06 April 2008 this will change.  If the company feels that there is a risk that the auditor or any other person is at risk of serious violence or intimidation as a result of the auditors’ name being stated they may pass a resolution to omit the name.  A copy of this resolution must not be submitted to Companies House but the auditor’s report would need to contain the following statement ‘In accordance with section 506 Companies Act 2006 a resolution has been passed and notified to the Secretary of State.’   

A notice of the resolution must be given to the Secretary of State at the following address;

Company Law Group
Department for Business, Enterprise & Regulatory Reform
1 Victoria Street
London
SW1H 0ET

The notice must state

• the name and registered number of the company;
• the financial year of the company to which the report relates; and
• the name of the auditor and (where the auditor is a firm) the name of the person who signed the report as senior statutory auditor.

NOTE: Under no circumstances should a copy of the resolution or notice be filed at Companies House.

• an officer or employee of the company or an associated company; or
• a partner or employee of such a person, or a partnership of which such a person is a partner

REMEMBER: Not all members of a recognised supervisory body are eligible to act as an auditor but the appropriate body will be able to tell you whether a particular individual or firm has a current audit-practising certificate.

1. The Institute of Chartered Accountants of Scotland
   21 Haymarket Yards
   Edinburgh EH2 5BH
   Tel: 0131 347 0100
2. The Institute of Chartered Accountants in England and Wales
   Professional Standards Office
   Silbury Court
   412-416 Silbury Boulevard
   Central Milton Keynes
   MK9 2AF
   Tel: 01908 248100
3. The Institute of Chartered Accountants in Ireland
   Chartered Accountants House
   87-89 Pembroke Road
   Dublin 4
   Tel: 0035 3166 80400
4. The Association of Chartered Certified Accountants
   64 Finnieston Square
   Glasgow G3 8DT
   Tel: 0141 582 2000
5. The Association of Authorised Public Accountants
   10 Lincoln's Inn Fields
   London
   WC2A 3BP
   Tel: 020 7396 5954

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• If there are any such circumstances, the company must send a copy of the statement to all the members of the company unless a successful application is made to the court to stop this. If the auditor does not receive notification of an application to the court within 21 days of depositing the statement with the company, the auditor must within a further 7 days send a copy of the statement to Companies House for the company's public record.
• If there are no such circumstances, the auditor must deposit a statement with the company to that effect. This statement need not be circulated to the members.

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The safest and most secure way to send statutory information to Companies House is to use our online filing services.   WebFiling offers free downloadable document templates. These contain inbuilt checks so that you can be sure you haven’t omitted any key information. For more information on availability and registration details please visit our website www.companieshouse.gov.uk.

You may deliver documents to the Registrar by hand (personally or by courier), including outside office hours, bank holidays and weekends to Cardiff, London and Edinburgh.   

You may also send documents by post, by the Document Exchange Service (DX) or by Legal Post (LP) in Scotland. If you send documents, please address them to:

We will only acknowledge receipt of documents at Companies if you provide a stamped addressed envelope.

Please note: an acknowledgement of receipt does not mean that a document has been accepted for registration at Companies House.

Companies House sends an automatic e-mail acknowledgement for every submission made via WebFiling and an additional e-mail indicating whether the submission has been accepted or rejected.

2. Can I file documents in other languages?

Usually, you must file documents sent to Companies House in English. There are exceptions as detailed below.  You can draw up and deliver documents relating to Welsh companies in Welsh.
Companies can deliver the following documents in other languages if the document is accompanied by a certified translation into English:

• Resolutions and agreements affecting a company’s constitution;
• Contracts relating to the allotment of shares for a consideration other than cash;
• For companies included in accounts of larger EEA or non-EEA groups, the group accounts and parent undertaking annual report; and
• Charge instruments (or copy charge instruments).

In addition companies may also file voluntary certified translations of any document subject to the First Company Law Directive disclosure requirements. These are:

• Constitutional documents such as the memorandum and articles of association;
• Directors appointments, changes in particulars or terminations;
• Accounts, reports and annual returns;
• Notification of any change in a company’s registered office;
• Winding up documents;
• Share capital documents (public companies only);
• Documents relating to mergers and divisions (public companies only); and
• Documents relating to overseas companies.

The voluntary translation must relate to a document delivered to Companies House on or after 1 January 2007.  Voluntary translations can only be filed in an official language of the European Union and must be accompanied by Form 1106.

3. Where do I get forms and guidance booklets?

Many forms can be submitted to Companies House online via our Software Filing or WebFiling services. The service provides a secure system for presenters to submit company information. (www.companieshouse.gov.uk)

Alternatively, statutory forms and guidance booklets are available, free of charge from Companies House. The quickest way to get them is through our website or by telephoning 0870 3333636.

Forms can also be obtained from legal stationers, accountants, solicitors and company formation agents - addresses in business phone books.

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