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Legal Responsibilities

Current laws require all incorporated businesses in the UK to have an annual statutory external audit if the company’s annual turnover excluding VAT exceeds £1,000,000. If your company has a turnover of less than £1m, it is exempt and can opt not to have an external audit.

If your company has minority shareholders with a minimum total of 10% holding, your shareholders can require your company to submit to an audit even if your company is exempt from statutory audits.

Nearly 70% of eligible UK companies took advantage of this exemption for the financial year 2001/2002. These companies used the external audit exemption to enjoy considerable savings and freed management resources which may be better devoted to other activities such as building the business. Some companies however, particularly larger ones, will choose to have an external audit regardless of their exemption eligibility. Generally, the larger the company, the more compelling are the arguments for having an external audit.

A move to increase the exemption limit to £5.6m turnover is being proposed by the Government. This would additionally exempt an estimated 66,000 UK-based companies from a mandatory external audit.

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