The regulatory environment for audits is constantly evolving, and staying informed is critical for businesses, charities, and medical practices alike. Several new and upcoming audit regulations could impact how you approach your financial reporting and compliance. In this blog post, JCS Accountants will outline these changes, explain what they mean for your organisation, and provide practical steps to ensure you remain compliant.
New thresholds for audit exemptions
As part of a broader effort to reduce regulatory complexity and burden, the UK government is raising the monetary thresholds that determine company size by 50%. These changes are designed to ease reporting requirements, particularly for non-financial reporting, and will apply to financial years starting on or after 1 October 2024.
If adopted, the changes will see the micro entity turnover threshold increase from £632,000 to £1 million, while the threshold for small companies will rise from £10.2m to £15m. The upper medium threshold will increase to £54m, with anything above this classifying as a large company. Balance sheet total thresholds will also see increases to not more than £500,000, £7.5m, £27m and anything above £27m respectively.
These adjustments are expected to remove around 132,000 businesses from certain non-financial reporting requirements, simplifying their reporting obligations. Additionally, the government plans to consult on further changes, such as increasing the employee threshold for medium-sized companies from 250 to 500 and potentially exempting them from producing a strategic report.
Increased focus on sustainability reporting
The growing emphasis on Environmental, Social, and Governance (ESG) factors has led to new requirements for sustainability reporting within audits. From this tax year, large companies are expected to provide more detailed information on their environmental impact, social responsibilities, and governance structures. This includes reporting on carbon emissions, diversity policies, and how your organisation’s practices align with broader societal goals.
While not mandatory for SMEs, medical practices, and charities, integrating ESG considerations into their financial reporting can enhance their reputation and align with stakeholder expectations. We recommend reviewing your current reporting practices and considering how ESG factors could be incorporated effectively.
Enhanced auditor independence requirements
Maintaining auditor independence is essential for ensuring the credibility of financial reports. The 2024/25 regulations have introduced stricter guidelines to prevent conflicts of interest between auditors and their clients. Specifically, auditors are now required to disclose any potential conflicts of interest more explicitly, and there are tighter restrictions on providing non-audit services to audit clients.
This change is particularly relevant for smaller organisations that rely on a single firm for multiple services. If you work with an auditor who also provides other services, reviewing these arrangements is important to ensure compliance with the new rules.
Digital audit trails
As technology continues to evolve, so too does the need for robust digital audit trails. The importance of maintaining secure, accessible, and transparent digital records has become increasingly clear, although the specific requirements for digital audit trails were not explicitly updated in the latest regulations.
For many SMEs, charities, and medical practices, this means investing in secure accounting software that tracks income and expenses and maintains a comprehensive digital audit trail. While not yet mandated, having detailed digital records of all financial transactions can aid compliance and make the audit process smoother and more efficient.
Charity audit thresholds: Awaiting changes
It is important to note that the thresholds for charity audits have not changed yet. The Institute of Chartered Accountants in England and Wales (ICAEW) has called for a consultation on charity audit thresholds, but as of now, the thresholds remain as they were. Charities with an income exceeding £1m or assets over £3.26m must still undergo a full audit, while those below this threshold can opt for an independent examination if their income exceeds £250,000.
Given the potential for future changes, we recommend that charities stay informed about these developments and prepare for adjustments that may come in the near future.
What should you do next?
Given these changes and potential upcoming adjustments, there are a few steps you should consider to ensure your organisation remains compliant:
- Review your financial thresholds: Based on the new thresholds, determine whether your organisation now meets the criteria for a statutory audit or independent examination.
- Assess your ESG reporting: If you haven’t already, consider how you can incorporate ESG factors into your financial reporting. This is especially relevant for larger companies, but even smaller organisations can benefit from greater transparency in these areas.
- Evaluate auditor relationships: If you use the same firm for audit and non-audit services, review this arrangement to ensure compliance with the enhanced independence requirements.
- Invest in digital accounting systems: While not mandated, ensuring that your financial records are maintained securely and are easily accessible for audit purposes can save you time and reduce the risk of errors.
- Prepare early: If your organisation is newly subject to audit requirements, start preparing now. Gathering the necessary documentation and understanding the audit process will help you avoid stress and potential compliance issues.
How we can help
We understand that keeping up with regulatory changes can be challenging, especially when you’re focused on running your business or managing a charity or medical practice. At JCS Accountants, we are here to help you navigate these changes and ensure that your organisation remains compliant.
Our team of experienced auditors and accountants can provide tailored advice and support, whether you’re preparing for your first audit or looking to enhance your ESG reporting. We can also assist with implementing digital accounting systems that streamline your financial management and ensure you’re ready for any audit requirements.
If you have any questions about the latest audit regulation changes or need assistance with your financial reporting, please don’t hesitate to get in touch. We’re here to help you stay compliant and focus on what you do best.
