What Is Statutory Audit UK? A Guide for Directors

For UK directors and CFOs, an audit is more than a year-end formality. It is an independent examination of whether the company's financial statements present a true and fair view, supported by appropriate records and explanations.

In practical terms, what is statutory audit uk? It is a legally required review of a company's financial statements and records under the Companies Act 2006. An independent auditor performs it when the company falls within the statutory requirements. The auditor assesses the evidence behind the accounts and reports an opinion, rather than preparing the accounts on management's behalf.

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Understanding that distinction is the first step. The next is to identify what the UK rules mean by a statutory audit. Which companies must have one, and how exemptions affect the responsibilities that remain with directors.

What is a statutory audit in the UK?

A statutory audit is an independent examination of a company's financial statements and accounting records where the law requires that examination. In practical terms, the auditor assesses whether the statements present a true and fair view of the company's financial position. Rather than simply accepting the figures prepared by management. The audit also considers the completeness and accuracy of the underlying records and whether the company has applied the relevant accounting requirements.

For UK companies, the legal framework is principally set by the Companies Act 2006, which sets out the criteria and requirements for companies that must undergo an audit. The auditor must be independent of the company and approach the work with professional objectivity. This independence is important because the audit opinion is intended to provide assurance to shareholders and other users of the accounts. Not merely confirmation from the people who prepared them.

What does true and fair mean?

True and fair does not mean that an auditor guarantees every figure or predicts the company's future performance. It means the auditor obtains sufficient appropriate evidence to form a professional opinion on whether the financial statements, taken as a whole, are materially misstated. The work may involve examining records, testing selected transactions, assessing accounting judgements and asking management for explanations.

Audit and accounts preparation are different

Accounts preparation is the process of compiling a company's financial statements from its books and records, applying the relevant reporting framework and making management's accounting judgements. The directors remain responsible for those accounts. An audit is a separate assurance engagement that evaluates the resulting statements and the evidence supporting them. Understanding the applicable UK financial reporting framework is therefore important, but preparing accounts does not itself amount to an audit.

Which UK companies need a statutory audit?

The Companies Act 2006 provides the main framework for deciding whether a UK company must have its financial statements audited. The answer depends on the company type, activities, ownership structure and the financial year being assessed. A private company may qualify for exemption, but size alone is not the only consideration.

For financial years beginning on or after 6 April 2025, a private company may qualify for audit exemption. The table below shows the three size conditions. The company must meet at least two.

Thresholds.

Condition.

Threshold.

Annual turnover

No more than £15 million

Balance sheet total

No more than £7.5 million

Average number of employees

50 or fewer

These thresholds are taken from the GOV.UK guidance on audit exemptions. The relevant financial-year start date matters, so directors should not apply the newer limits automatically to an earlier reporting period.

Companies that generally cannot rely on the small-company exemption

Public companies generally require an audit unless they are dormant. Subsidiaries generally require one unless a specific exemption applies. Mandatory-audit categories also include authorised insurance companies, businesses involved in banking, electronic-money issuers, MiFID investment firms and UCITS management companies. A company whose shares are traded on a regulated market is also within the listed-company category requiring an audit.

Regulated businesses should assess their position alongside their wider UK regulatory compliance advisory requirements. A company can also lose the practical benefit of exemption if shareholders holding at least 10% of the shares. Measured by number or value, submit a written request for an audit to the registered office. The request must arrive at least one month before the end of the financial year to which it relates.

This is a classification exercise, not a decision based on turnover alone. Company status, regulated activities, group structure, shareholder action and the applicable year should all be checked before concluding that an audit is not required.

What is audit exemption in the UK?

Audit exemption allows an eligible company to prepare and file its annual accounts without appointing an auditor for the relevant financial year. For financial years beginning on or after 6 April 2025. A private company may qualify where it meets at least two of three size conditions: annual turnover of no more than £15 million. Assets of no more than £7.5 million, and an average of no more than 50 employees. These thresholds are set out in the GOV.UK guidance on audit exemptions.

The test is not the only consideration. A company may fall within a category that requires an audit despite its size, or its group and ownership structure may affect eligibility. Dormant companies, individual small companies, small members of a small group, and certain subsidiaries with a qualifying UK parent guarantee can have distinct exemption routes. The position should therefore be confirmed for the specific accounting period and company structure, rather than inferred from turnover alone.

What responsibilities continue after exemption?

Exemption removes the audit requirement, not the obligation to maintain proper accounting records, prepare financial statements and file statutory accounts with Companies House. Depending on the filing category, the company may still need to submit full accounts, including a directors' report. Directors remain responsible for the accounts and the underlying records, even though an independent auditor has not tested them.

Where the small-company exemption is claimed, the balance sheet must include a statement that the company was entitled to exemption under section 477 of the Companies Act 2006. The statement also acknowledges the directors' responsibilities for complying with the Act in relation to accounting records and preparation of accounts. Directors should continue to assess whether financial controls support reliable reporting. For broader context, see our guide to internal controls and director accountability.

Shareholders holding at least 10% of the shares can also require an audit through a written request delivered to the registered office, subject to the statutory timing rules. Confirm the exemption with a qualified adviser before relying on it, particularly where the company belongs to a group or operates in a regulated sector.

What happens during a statutory audit process?

The process is structured, but the depth of work depends on the company's size, complexity, systems and risk profile. Directors and CFOs should view it as an evidence-led examination of the financial statements, not simply a year-end check of the ledger.

1. Planning and understanding the business. The auditor meets management to understand the business model, key transactions, reporting timetable and financial reporting processes. This includes considering how information moves through the organisation and where errors or omissions could arise. Early planning also establishes the information request list, responsibilities and expected points of contact.
2. Assessing risks and designing procedures. The audit team uses its understanding of the business to identify areas requiring greater attention. These may include material balances, complex estimates, revenue recognition, unusual transactions or weaknesses in relevant controls. The resulting approach determines which records, controls and transactions require testing.
3. Obtaining evidence and carrying out fieldwork. During fieldwork, auditors inspect and test supporting evidence rather than relying solely on management explanations. They may access the company's books, accounts and records in whatever form they are held. Evidence can include reconciliations, invoices, contracts, bank information, schedules and other documentation relevant to the balances and disclosures.
4. Raising queries and resolving differences. Auditors ask officers or employees for information or explanations where records require clarification. Management may need to provide additional evidence, correct an error, explain a judgement or update a disclosure. Prompt, well-organised responses help the team assess whether an issue is isolated or indicates a wider reporting risk.
5. Completing the audit and reporting. The auditor evaluates the evidence obtained, reviews identified matters and discusses findings with management and those charged with governance. Once complete, the auditor produces a standard report communicating the findings. The report addresses relevant areas of concern and is included with the company's financial statements. The timing is case-specific, so companies should agree a realistic timetable early rather than assume a fixed duration.

Strong preparation means maintaining clear accounting records, assigning owners to audit requests and escalating judgement-heavy matters early. That discipline supports a more efficient audit while preserving the auditor's independent assessment.

What does the auditor's report mean for directors and CFOs?

The auditor's report formally communicates the auditor's findings after completing the audit. It accompanies the company's financial statements and draws attention to matters the auditor considers relevant to those statements. It does not replace management's responsibilities. Directors remain responsible for maintaining appropriate accounting records and preparing the company's accounts.

For directors and CFOs, the report is a governance input, not simply a filing document. Read it alongside the financial statements and communications from the audit team. If the auditor identifies a concern, management should establish its cause. Assess the effect on the accounts or reporting process, and assign a clear owner and timetable for resolution. The objective is a controlled response supported by evidence, rather than an informal explanation at the end of the audit.

Records and controls shape the quality of the audit

Auditors can access the company's books, accounts and records in the form in which they are held. They may also request information or explanations from officers and employees. A CFO should therefore maintain a clear evidence trail for significant judgements, reconciliations, estimates, transactions and management reviews. Documented internal controls and director accountability can make responsibilities clearer and help the business address weaknesses before they become recurring audit findings.

A company that qualifies for an exemption may still choose to commission an audit voluntarily. This can provide additional reassurance about statutory financial reporting obligations and confidence in the accuracy of the financial statements. Particularly where the business is growing, seeking finance, preparing for a transaction or managing increased stakeholder scrutiny. The decision should reflect the company's risk, ownership and reporting needs. For broader CFO financial oversight support, directors can seek advice tailored to their reporting environment.

How should you choose a statutory auditor?

Choosing an auditor is a governance decision, not simply a procurement exercise. Start by confirming that the audit firm and responsible auditor are authorised through a recognised supervisory body. The ICAEW provides information on professional regulation and audit oversight. This establishes an essential eligibility baseline, but it should not be the only selection criterion.

Assess whether the proposed team understands your sector, operating model and reporting complexity. A business with regulated activities, overseas subsidiaries, significant estimates or complex group structures may need experience that extends beyond routine statutory accounts. Ask for examples of comparable assignments and clarify how the firm will approach the areas most likely to require judgement.

Also establish who will lead the engagement. Confirm the level of partner involvement, how senior team members will remain accessible, and who will make significant decisions during the audit. A clear communication plan should cover planning, information requests, emerging issues, management responses and completion. This is particularly important where directors or the audit committee need early visibility of matters that could affect the accounts or timetable.

Finally, review the quality of the proposed reporting. The auditor should explain findings plainly, distinguish control observations from matters affecting the audit opinion, and provide practical context without taking management responsibility. Ask to see an example of the reporting format, understand the expected deliverables and confirm how unresolved points will be escalated.

These checks help directors compare firms on independence, relevant capability and working relationship rather than on credentials alone. Aureliant Global provides audit and assurance services for businesses seeking a structured, partner-led approach to statutory reporting and assurance.

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Frequently Asked Questions

What is statutory audit in simple words?

It is an independent examination of a company's financial statements and records to assess whether they present a true and fair view. In the UK, the framework is set primarily by the Companies Act 2006. The audit provides directors, shareholders and other users with an informed assessment of the reported financial position.

Are statutory audits mandatory for every UK company?

No. Some private companies may qualify for audit exemption, but public companies, many regulated businesses and subsidiaries generally require an audit unless a specific exemption applies. The position depends on the company's legal status, activities, group structure and financial year, so directors should confirm the analysis rather than rely only on company size. GOV.UK explains the relevant audit exemptions.

What are the UK audit exemption thresholds?

For financial years beginning on or after 6 April 2025. A private company may qualify if it meets at least two of these conditions: annual turnover of no more than £15 million. Assets of no more than £7.5 million, and an average of 50 or fewer employees. These thresholds are time-sensitive, and exemption does not remove the duty to prepare and file statutory accounts. Check the current GOV.UK guidance for the detailed rules.

Can shareholders require an audit if a company is exempt?

Yes. Shareholders holding at least 10% of the shares by number or value can request an audit in writing. The request must be sent to the company's registered office and generally arrive at least one month before the end of the relevant financial year. The right can be exercised by one shareholder or by a group acting together.

Can a UK subsidiary claim audit exemption?

Sometimes, but not automatically. A subsidiary generally needs an audit unless it qualifies for an available exemption and satisfies the applicable conditions. Directors should review the full group structure, the subsidiary's status and any regulated-entity restrictions before relying on exemption, particularly where the parent is overseas.

Discuss your UK statutory audit requirements

Clear planning can help directors and CFOs understand their obligations, prepare the right records, and assess whether their current audit arrangements remain appropriate. Aureliant Global can help you review your position and identify the next practical steps. London office: +44 20 7967 1177. To request a consultation, contact our team with your UK statutory audit requirements.