If you are a medium or large company in the UK it is likely you will require a financial audit. There are some exemptions but in simple terms, from 1 January 2016 any company which breaches 2 of the following thresholds for two consecutive years must be audited.

• Turnover of more than £10.2m
• Assets in excess of £5.1m
• 50 employees

Covid-19 has impacted the turnover of many companies, some have seen a significant decrease in their turnover and headcount particularly due to the UK and international lockdowns and cessation of trade/knock-on effect for several sectors.

However, a decrease in turnover to a level which is under the audit threshold (of £10.2m) or a reduction in headcount (to under 50 employees) does not necessarily mean that an audit exemption can be applied.

The two-year rule
If the company is more than a year old, the ‘two-year rule’ is applied, this means that the company must cease to meet the audit thresholds for two consecutive years in order to be eligible for an audit exemption.

Exceptions 
A company must still have an audit if at any time in the financial year it: 

• Is stated in the articles of association that the shareholders require an audit (usually because they own at least 10% of the shares)
• Is a trading public company
• Is a subsidiary company within a group (which is not small)
• Is an authorised insurance company or carrying out insurance market activity
• Is involved in banking or issuing e-money
• Is a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
• Is a corporate body and its shares have been traded on a regulated market in a European state