At the end of 2024, there were approximately 5.35m companies registered with Companies House. The great majority were private limited companies and most of those were designated as 'smaller companies' (with turnover of under £10.2m or assets under £5.1m or fewer than 50 employees).
Such companies aren’t compelled to prepare audited annual accounts. They can instead prepare and file at Companies House ‘unaudited’ annual accounts, subject to being compelled to prepare audited accounts by company shareholders.
However, an audit of a private limited company’s annual accounts can be forced upon a company by any shareholder(s) representing at least 10% of the company's issued share capital.
So, what are the main differences between audited and unaudited accounts? Specialist shareholder rights lawyer Paul Lunt explains.
Key differences with audited accounts
The key differences are that audited accounts include the following:
1. Greater transparency
Whereas unaudited accounts may omit certain details — like a full profit and loss account or the directors' report — those aspects must be included within audited accounts.
While it’s an oversimplification to say that unaudited accounts simply record what the directors claim the position to be without verification, there are certainly fewer checks and balances.
For example, when looking at stocktake figures within audited accounts, the auditor must observe stock counts to confirm the existence and completeness of inventory, verify internal controls and assess risks of material misstatement in financial statements. Although the auditor need not conduct the count themselves, they’re responsible for observing and taking note of procedures, ensuring accurate counting and identifying any discrepancies or issues such as defective or missing items. The auditor may perform test counts and should assess whether stock is valued correctly and in-line with accepted accounting standards.
2. Independent audit
These accounts are subject to an independent examination by a qualified auditor, who must provide their opinion on whether the accounts give a "true and fair view" of the company’s financial position. This also entails setting out the basis for that opinion, an explanation of how the audit was conducted and identifying any significant issues discovered as part of the audit.
3. Certificate of compliance with accounting standards
Generally, audited accounts must strictly comply with UK GAAP (Generally Accepted Accounting Practice) or IFRS (International Financial Reporting Standards).
4. Director and Auditor Responsibilities Statements
Consistent with the above requirements, audited accounts should contain both Director and Auditor Responsibilities Statements confirming the directors’ responsibility for the financial statements and the auditor’s confirmation of compliance with UK auditing standards.
As a broad generalisation, annual audit costs are typically £15,000 to £20,000 higher than the costs of preparing audited accounts. Those additional costs must be borne by the company where a shareholder(s) forces a compulsory audit.
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