Major change to company size thresholds to impact reporting and audit requirements

However, there are some changes to the plans laid by the previous Government, with proposals to reduce the reporting requirements for medium-sized companies shelved and due to be included in a consultation next year.

When will these changes come in?

The legislation is due to be laid before parliament by the end of the year and is expected to come into force on 6 April 2025.

What does it mean for financial reporting and audit?

Companies able to move down a size category will be entitled to the accompanying reduction in reporting requirements.

It is estimated that approximately 13,000 companies which were previously classed as ‘medium-sized’ will now fall into the small company regime and thus be able to apply an audit exemption and allowing them to prepare simpler company accounts (using FRS 102 1A for smaller entities rather than requiring full FRS 102 accounts).

A further 113,000 estimated companies will also now be classified as ‘micro-entities’ rather than small, allowing them to prepare even simpler accounts under FRS 105, easing the overall reporting process.

However, there are circumstances where an audit may be required for a small company. This can include being part of a group, or an audit being required by the company’s bank or shareholders. Therefore, the changes in audit thresholds may not necessarily mean an audit is not required for all companies.

What is happening with Medium-sized company thresholds?

There is expected to be a wider consultation launched next year on the Future of Corporate Reporting. It will focus on non-financial reporting such as sustainability reporting, and the proposals relating to medium-sized entities will be considered as part of this broader consultation.