The UK government is considering extending audit exemptions to eligible medium-sized companies under a consultation on corporate reporting opened on 7 September. Ministers want to reduce compliance costs, while seeking evidence on whether fewer mandatory audits could affect access to finance.
The consultation also covers financial disclosures, governance, directors’ pay reporting and digital communications. The proposed exemptions have not become law.
Which companies could benefit?
An audit is an independent examination of a company’s accounts. The government is asking whether eligible medium-sized businesses should be able to use the broader accounting and reporting exemptions currently available to small companies.
Under current government guidance, a private limited company may qualify for the small-company audit exemption if it meets at least two size tests: annual turnover of no more than £15 million, assets of no more than £7.5 million, and an average of 50 or fewer employees. Those limits apply to financial years beginning on or after 6 April 2025.
Size alone does not settle eligibility. Exclusions apply to certain companies, including regulated financial businesses, and an audit can still be required by the company’s articles or a qualifying shareholder request. Exemption from an audit also leaves directors responsible for accounting records and preparing accounts.
The new consultation document asks whether a wider regime for small and medium-sized enterprises could remove unnecessary work. It is also exploring a voluntary assurance standard that could give lenders confidence in accounts at a lower cost than a full statutory audit.
Borrowing needs complicate the cost calculation
The government acknowledges that audited accounts can help companies obtain finance or borrow more cheaply. It warns that a business discovering a lender needs several years of audited accounts may face delays and expense if those audits were not carried out at the time.
Reliable reporting also depends on the people preparing the accounts. We recently reported on US research linking accounting-team turnover with reporting problems. That study examined staff changes, rather than audit exemptions, but provides background on the work behind published figures.
Alan Vallance, chief executive of the Institute of Chartered Accountants in England and Wales, welcomed the reform initiative while urging a careful process. In an ICAEW statement, he encouraged ministers to “take time to ensure all stakeholders are listened to and all options are fully considered”.
A broader review of annual reporting
The government’s announcement says the wider programme includes making electronic shareholder communications the default and simplifying overlapping reporting requirements.
Its reference to more than £450 million in annual savings concerns reforms already introduced. It is not a new estimate of the savings from the audit-exemption proposal now under consultation.
Jordan Cummins, the CBI’s UK competitiveness director, welcomed modernisation while describing corporate reporting as central to investor and market confidence.
Companies, investors, creditors and other interested parties can respond to the consultation until 30 November 2026. The final scope of any wider exemption remains undecided.
