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Introduction
This booklet briefly
explains the role
of a company auditor.
It outlines which
companies must appoint
an auditor and the
circumstances when
an auditor is not
required. It also
explains the procedure
for appointing and
removing auditors
from office.
The booklet does
not cover the role
of a 'reporting
accountant' appointed
to charitable companies
which are partially
exempt from audit.
For information
on this, please
refer to our booklet
'Accounts and Accounting
Reference Dates'.
You will find the
relevant law in
the Companies Act
1985 (as amended
in 1989 and later).
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CHAPTER 1
Appointment of auditors
1. What
is an auditor?
An auditor is a
person who makes
an independent report
to a company's members
as to whether its
financial statements
have been properly
prepared in accordance
with the Companies
Act 1985. The report
must also say if
a company's accounts
give a true and
fair view of its
affairs. Most companies
are required to
have their accounts
audited - see question
2 below.
2. Must
all company accounts
be audited?
No. If they qualify
for exemption and
wish to take advantage
of it, dormant companies
and certain small
companies do not
have to have their
accounts audited.
To qualify for audit
exemption as a small
company, the company
must:
- qualify as small;
- have a turnover
of not more than
£1 million; and
-
have
a balance sheet
total of not
more than £1.4
million.
Please
note:
New
audit
exemption
thresholds
apply
to financial
years
ending
after
30 March
2004
To qualify
for
total
audit
exemption,
a company
must:
- qualify
as
small;
- have
a
turnover
of
not
more
than
£5.6
million;
and
- have
a
balance
sheet
total
of
not
more
than
£2.8
million.
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For a charitable
company to qualify
for total audit
exemption, it
must qualify
as small, its
gross income
must not be
more than £90,000
and its balance
sheet total
must not be
more than £1.4
million.
Charities with
a gross income
between £90,000
and £250,000
and a balance
sheet total
of not more
than £1.4 million
qualify for
partial exemption.
-
Dormant
company audit
exemption may
be claimed by
a limited company
that has not
traded during
a financial
year, and provided
it meets certain
other criteria.
See our booklet,
'Dormant Companies'.
Dormant companies
do not need
to appoint auditors
and can deliver
very basic accounts
to Companies
House.
More
information about
audit exemption
for dormant companies
and small companies
is available in
our booklet, 'Accounts
and Accounting Reference
Dates'.
Audited accounts
must be delivered
to Companies House
if a company falls
into any of the
following categories:
(a) A parent company
or subsidiary undertaking
(unless dormant
for the period during
which it was a subsidiary)
except where the
group:
- qualifies as
a small group
or would qualify
if all the bodies
corporate in the
group were companies;
and
-
the
turnover for
the whole group
is not more
than £1 million
net or £1.2
million gross
(for a financial
year that ended
before 26 July
2000 or if the
company is a
charity, the
combined turnover
must not be
more than £350,000
net or £420,000
gross); and
- the combined
balance sheet
total is not more
than £1.4 million
net (£1.68 million
gross).
Please
note: New
audit exemption
thresholds
apply to financial
years ending
after 30 March
2004
A parent company
or subsidiary
undertaking
(unless dormant
for the period
during which
it was a subsidiary)
cannot qualify
except where
the group:
-
qualifies
as a small
group
or would
qualify
if all
the bodies
corporate
in the
group
were companies
; and
-
the
turnover
for the
whole
group
is not
more than
£5.6
million
net (or
£6.72
million
gross);
and
-
the
group’s
combined
balance
sheet
total
is not
more than
£2.8
million
net (or
£3.36
million
gross).
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(b) A member of a
group of companies
in which any member
is:>
-
a
public company
or body corporate
which (not being
a company) has
power under
its constitution
to offer shares
or debentures
to the public;
-
a
person who has
permission under
Part 4 of the
Financial Services
and Markets
Act 2000 to
carry on a regulated
activity; or
- a person who
carries on insurance
market activity.
(c)
A person who has
permission under
Part 4 of the Financial
Services and Markets
Act 2000 to carry
on a regulated activity.
(d) A person who
carries on insurance
market activity.
(e) An appointed
representative within
the meaning of s.39
of the Financial
Services and Markets
Act 2000
(f) A public limited
company unless the
company is dormant.
See our booklet
'Accounts and Accounting
Reference Dates'.
(g) A special register
body or an employers'
association under
the Trade Union
and Labour Relations
(Consolidation)
Act 1992.
(h) A company where
an audit is required
by a member or members
holding at least
10% of the nominal
value of issued
share capital, or
holding 10% of any
class of share or
- in the case of
a company limited
by guarantee - 10%
of its members in
number.
3. How is
a company auditor
appointed?
The directors appoint
the first auditor
of the company.
The auditor then
holds office until
the end of the first
meeting of the company
at which its accounts
are laid before
the members. At
that meeting the
members of the company
can re-appoint the
auditor, or appoint
a different auditor,
to hold office from
the end of that
meeting until the
end of the next
meeting at which
accounts are laid.
However, private
companies can pass
an 'elective resolution'
not to lay accounts
before the members
in a general meeting.
If this is done,
then the auditor
has to be re-appointed,
or a new one appointed,
at another meeting
of the company's
members that must
be held within 28
days of the accounts
being sent to the
members.
Private companies
can also pass an
elective resolution
dispensing with
the need to appoint
an auditor every
year. If that happens,
the auditor already
appointed remains
in office without
further formality
until a resolution
is passed to re-introduce
annual appointment
or to remove him
or her as auditor.
For more information
on resolutions,
see our booklet
'Resolutions'.
4. What
does an auditor
do?
The auditor will
check the accounts
and accounting records
of the company and
prepare a report
for the company's
members.
The report will
say if the company's
annual accounts
have been properly
prepared in accordance
with the Companies
Acts and if they
give a true and
fair view of the
company's financial
affairs. The auditor
will also consider
if the information
given in the directors'
report is consistent
with the annual
accounts.
If in the auditor's
opinion, the accounts
or directors' report
does not comply
with the Companies
Act, the auditor
will say so in the
report.
5. Can my
accountant be my
auditor?
An auditor must
be independent of
the company, therefore,
a person cannot
be appointed as
an auditor if they
are:
- an officer or
employee of the
company or an
associated company;
- a partner or
employee of such
a person, or a
partnership of
which such a person
is a partner
If
your accountant
does not fall into
one of the above
categories and if
he or she has a
current audit-practising
certificate issued
by a recognised
supervisory body,
they may act as
the company's auditors.
REMEMBER: Not all
members of a recognised
supervisory body
are eligible to
act as an auditor
but the appropriate
body will be able
to tell you whether
a particular individual
or firm has a current
audit-practising
certificate.
6. What
and who are recognised
supervisory bodies?
These are bodies
recognised by the
Secretary of State
as having rules
designed to ensure
that auditors are
of the highest professional
competence. Each
recognised body
has strict regulations
and a disciplinary
code to govern the
conduct of their
registered auditors.
The five recognised
bodies are:
- The
Institute of Chartered
Accountants of
Scotland
27 Queen Street
Edinburgh EH2
1LA
Tel: 0131 225
5673
- The Institute
of Chartered Accountants
in England and
Wales
Professional Standards
Office
Silbury Court
412-416 Silbury
Boulevard
Central Milton
Keynes
MK9 2AF
Tel: 01908 248100
- The
Institute of Chartered
Accountants in
Ireland
Chartered Accountants
House
87-89 Pembroke
Road
Dublin 4
Tel: 0035 3166
80400
- The Association
of Chartered Certified
Accountants
64 Finnieston
Square
Glasgow G3 8DT
Tel: 0141 582
2000
- The
Association of
Authorised Public
Accountants
10 Lincoln's Inn
Fields
London
WC2A 3BP
Tel: 020 7396
5954
REMEMBER:
You can ask
your auditor
to confirm
that he or
she is registered
with one of
these bodies
or you can
contact the
appropriate
body. |
7. Is an
auditor only concerned
with annual accounts?
Yes. However, there
is nothing to stop
you employing an
auditor for other
purposes, such as
keeping the books
or compiling the
tax return, provided
he (or she) does
not take part in
the management of
the company. You
should agree an
engagement letter
that sets out the
auditor's duties.
For instance, the
company may want
the auditor to prepare
a management report
after an audit,
listing all the
minor faults that
were found even
if they have been
corrected.
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CHAPTER 2
Removal of auditors
1. Can an
auditor be removed?
Yes. The members
of a company may
remove an auditor
from office at any
time during his
(or her) term of
office or decide
not to re-appoint
the auditor for
a further term.
They must give the
company 28 days'
notice of their
intention to put
a resolution to
remove the auditor,
or to appoint somebody
else, to a general
meeting. A copy
of the notice of
the intended resolution
must be sent to
the auditor, who
then has the right
to make a written
response and require
that it be sent
to the company's
members.
Although
a company
may remove
an auditor
from office
at any time,
the auditor
may be entitled
to compensation
or damages
for termination
of appointment.
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If an auditor ceases
for any reason to
hold office, he
must deposit a statement
at the company's
registered office.
The statement should
set out any circumstances
connected with his
ceasing to hold
office that he considers
should be brought
to the attention
of the members and
creditors of the
company.
-
If
there are any
such circumstances,
the company
must send a
copy of the
statement to
all the members
of the company
unless a successful
application
is made to the
court to stop
this. If the
auditor does
not receive
notification
of an application
to the court
within 21 days
of depositing
the statement
with the company,
the auditor
must within
a further 7
days send a
copy of the
statement to
Companies House
for the company's
public record.
-
If
there are no
such circumstances,
the auditor
must deposit
a statement
with the company
to that effect.
This statement
need not be
circulated to
the members.
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CHAPTER 3
Further information
1. How do
I send information
to the Registrar?
You may deliver
documents to the
Registrar by hand
(personally or by
courier), including
outside office hours,
bank holidays and
weekends to Cardiff,
London and Edinburgh.
You may also send
documents by post
or by the Hays Document
Exchange service
(DX). If you send
documents, please
address them to:
For
companies incorporated
in
England & Wales: |
For
companies incorporated
in
Scotland: |
The Registrar
of Companies
Companies House
Crown Way
Cardiff CF14
3UZ
DX33050 Cardiff
|
The Registrar
of Companies
Companies House
37 Castle Terrace
Edinburgh EH1
2EB
DX ED235 Edinburgh
1 |
We will only acknowledge
receipt of documents
at Companies if you
provide a stamped
addressed envelope.
Please
note: Companies
House does
not accept
accounts or
any other
statutory
documents
by fax. |
2. Where
do I get forms
and guidance booklets?
This is one of
a series of Companies
House booklets
which provide
a simple guide
to the Companies
Act.
Statutory forms
and guidance booklets
are available,
free of charge
from Companies
House. The quickest
way to get them
is through this
website or by
telephoning 0870
3333636.
If you prefer
you can write
to our stationery
sections in Cardiff
or Edinburgh.
Forms can also
be obtained from
legal stationers,
accountants, solicitors
and company formation
agents - addresses
in business phone
books.
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