“Do we actually need an audit?” It’s one of the most common questions we get from NI business owners, and the answer isn’t always as straightforward as you’d think. The rules depend on your company’s size, structure, and sometimes what sector you operate in.
This guide explains the statutory audit thresholds, who qualifies for exemption, and, perhaps more importantly, when you might want an audit even if the law doesn’t require one.
The basics: when is an audit legally required?
Under the Companies Act 2006, a company must have its annual accounts audited unless it qualifies as “small” and claims the audit exemption. The small company thresholds are:
| Threshold | Limit |
|---|---|
| Annual turnover | Not more than £10.2 million |
| Balance sheet total | Not more than £5.1 million |
| Average number of employees | Not more than 50 |
The “two out of three” rule
To qualify as a small company (and therefore be exempt from audit), you must meet at least two of the three thresholds in the current financial year and the preceding year.
So if your turnover is £12 million but your balance sheet is £3 million and you have 30 employees, you only breach one threshold. You still qualify as small. You don’t need an audit.
Conversely, if your turnover is £11 million and your balance sheet is £6 million but you only have 20 employees, you breach two out of three. You’re no longer small. You need an audit.
Important: You must meet the small company criteria for two consecutive years to qualify for exemption (or, if this is your first year of trading, you must meet them in that first year). If you were small last year but breached the thresholds this year, you’re still exempt this year. But if you breach again next year, the exemption is lost.
What about micro-entities?
Micro-entities (turnover under £632,000, balance sheet under £316,000, fewer than 10 employees) also qualify for audit exemption and can file even simpler accounts. The same two-out-of-three rule applies.
When you can’t claim the exemption
Even if your company meets the small company thresholds, certain types of company are always required to have an audit:
- Public companies (PLCs), whether traded or not
- Banking and insurance companies, and companies authorised under the Financial Services and Markets Act
- Companies that are part of a group that is not small (more on this below)
- Companies where shareholders have requested an audit (shareholders holding at least 10% of shares can demand one)
Group companies: different rules
If your company is part of a group, the thresholds work differently. The group as a whole must qualify as a “small group” for individual companies within it to claim the audit exemption.
The small group thresholds (aggregate, before consolidation adjustments) are:
| Threshold | Limit (gross) | Limit (net, after adjustments) |
|---|---|---|
| Turnover | £12.2 million | £10.2 million |
| Balance sheet total | £6.1 million | £5.1 million |
| Employees | 50 | 50 |
If the group breaches two out of three of these thresholds, no company in the group can claim audit exemption, even if individually they’d qualify as small.
This catches out more NI businesses than you might expect. A property company, a trading company, and a holding company might each be modest in size, but combined they breach the turnover and balance sheet limits. Suddenly all three need an audit.
Charities and Community Interest Companies (CICs)
Charities and CICs have their own, lower thresholds for audit requirements.
Charities registered in Northern Ireland (CCNI)
A charity registered with the Charity Commission for Northern Ireland must have its accounts audited if, in the financial year, either:
- Its gross income exceeds £1 million, or
- Its gross assets exceed £3.26 million and its gross income exceeds £250,000
If the charity is below these thresholds but has gross income over £250,000, it needs an independent examination rather than a full audit. This is less intensive (and less expensive) than an audit but still provides third-party assurance.
| Charity income | Requirement |
|---|---|
| Over £1 million | Full audit |
| Over £250,000 (and gross assets over £3.26M) | Full audit |
| £250,000 to £1 million (assets under £3.26M) | Independent examination |
| Under £250,000 | Accounts prepared, but no audit or examination required |
Community Interest Companies (CICs)
CICs limited by guarantee follow similar thresholds to standard companies, but the CIC Regulator may require an audit in specific circumstances. CICs that are also charities follow the charity thresholds above.
NI-specific note: Charity regulation in Northern Ireland is governed by the Charities Act (Northern Ireland) 2008, administered by the Charity Commission for Northern Ireland (CCNI). The thresholds and requirements differ slightly from those in England and Wales (governed by the Charity Commission for England and Wales). If your charity operates across both jurisdictions, you need to understand both sets of rules.
When you might want an audit even if you’re exempt
Here’s where it gets interesting. Just because you don’t legally need an audit doesn’t mean one wouldn’t be valuable. There are several situations where a voluntary audit makes strong business sense:
Bank covenants and lending
If your company has bank borrowings, your facility agreement may require audited accounts. This is increasingly common in Northern Ireland, particularly for property-backed lending. Even where the bank doesn’t formally require an audit, providing audited accounts can strengthen your position when renegotiating facilities or applying for new finance.
NI banks and lenders are becoming more data-driven in their lending decisions. Audited accounts carry more weight than unaudited ones when you’re sitting across the table from a credit committee.
Investor confidence
If you’re seeking investment (whether from Invest NI, private equity, angel investors, or a strategic acquirer), audited accounts provide an independent stamp of credibility. Investors will do their own due diligence regardless, but starting from a position of audited figures speeds up the process and builds trust.
Grant requirements
Many grant programmes require audited accounts, either as part of the application process or as a condition of the grant. This is particularly relevant in Northern Ireland, where Invest NI and other public bodies are significant sources of business funding.
Planning tip: If you’re planning to apply for a major grant in the next 12 months, check the application requirements now. If audited accounts are needed, you’ll want to engage an auditor before your year end, not after.
Preparing for sale
If there’s any chance you’ll sell your business in the next few years, having a history of audited accounts makes the due diligence process smoother and faster. It also tends to increase buyer confidence, which can improve the price.
Internal controls and fraud prevention
An audit isn’t just about ticking a box. The audit process tests your internal controls, your financial reporting processes, and the accuracy of your accounting records. For growing businesses, this external scrutiny can highlight weaknesses before they become expensive problems.
We’ve seen NI businesses discover stock discrepancies, invoicing errors, and even employee fraud through the audit process. The cost of the audit was a fraction of the cost that would have built up if the issue had continued undetected.
What the audit process involves
If you do need (or choose to have) an audit, here’s what to expect:
Timeline
A typical audit for a small to medium NI company takes four to eight weeks from the start of fieldwork to signing the audit report. But the process starts before that:
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Planning (1-2 months before fieldwork): Your auditor assesses the risks specific to your business, plans the testing approach, and sends you a list of what they’ll need from you.
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Preparation (you): You assemble the documents and information requested. This typically includes bank statements, loan agreements, supplier statements, stock records, payroll summaries, board minutes, and more. The better prepared you are, the faster (and cheaper) the audit.
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Fieldwork (1-3 weeks on-site or remote): The audit team reviews your records, tests transactions, verifies balances, and checks your disclosures. Modern audits are increasingly done remotely using cloud accounting data, but some physical verification (stock counts, asset inspections) may still be needed.
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Review and queries (1-2 weeks): The audit team raises any questions or issues. You respond. They review your responses.
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Reporting (1-2 weeks): The auditor prepares the audit report and management letter (which highlights any control weaknesses or recommendations). You review and discuss. The accounts are signed.
What your auditor needs from you
The single biggest factor in how smoothly an audit runs is preparation. Here’s what we typically ask clients for:
- Year-end bank statements and reconciliations
- Aged debtors and creditors listings
- Stock/inventory records (and stock count sheets if applicable)
- Fixed asset register
- Loan and lease agreements
- Board minutes for the year
- Copies of any significant contracts entered into during the year
- Payroll summaries and P11Ds
- VAT returns and reconciliations
- Prior year accounts and tax computations
The earlier you can pull these together, the better. If you’re using cloud software (Xero, QuickBooks, Sage), your auditor can access much of this directly, which speeds things up considerably.
What drives audit fees
Audit fees in Northern Ireland vary significantly depending on the size and complexity of the engagement. Key drivers include:
| Factor | Impact on fees |
|---|---|
| Turnover and balance sheet size | Higher = more testing required |
| Number of transactions | More transactions = more sample testing |
| Quality of accounting records | Poor records = more auditor time |
| Industry complexity | Regulated industries, construction, grants = more work |
| Number of locations | Multiple sites = additional travel and testing |
| Group structure | Multi-entity groups require consolidated work |
| Accounting software | Cloud software generally reduces audit time |
| Preparedness | Being well-prepared materially reduces fees |
A straightforward audit for a small NI company with tidy records and a single location might cost £5,000 to £10,000. A more complex engagement (multiple entities, high transaction volumes, industry-specific regulations) could be £15,000 to £30,000 or more.
The most effective way to keep audit fees down is to keep your accounting records clean throughout the year, not just at year end. Monthly bank reconciliations, properly coded transactions, and a tidy fixed asset register make a genuine difference.
The NI angle
Charity Commission NI (CCNI)
CCNI has been progressively strengthening its oversight of charity accounting in Northern Ireland. If your charity is registered (or should be registered) with CCNI, make sure your accounts comply with the applicable SORP (Statement of Recommended Practice) and that you file your annual monitoring return on time.
CCNI can and does request additional information from charities, and failure to comply with reporting requirements can result in regulatory action. Having properly audited or independently examined accounts is your first line of defence.
Invest NI grant audits
If your business has received a significant grant from Invest NI, the terms of the grant may include audit requirements that go beyond what the Companies Act demands. These might include:
- Audited accounts for each year of the grant period
- Specific auditor verification of grant expenditure
- Compliance certificates from your auditor
Check your letter of offer carefully. Non-compliance with grant conditions can result in clawback, which is exactly as unpleasant as it sounds.
Local government and public sector contracts
If your business supplies goods or services to NI local councils, government departments, or health trusts, the procurement process often includes a requirement for audited accounts covering the last two or three financial years. Having these ready and up to date can be the difference between qualifying for a tender and being excluded from it.
How Arro can help
Whether your company requires a statutory audit or you’re considering a voluntary one, we make the process as efficient and painless as possible. Our audit team works closely with our accounts and tax teams, so you’re not dealing with multiple firms or duplicated requests. If you’re unsure whether you need an audit, we’ll assess your position and give you a clear answer.