Audit exemption reports
UK
These notes are intended for members working in the United Kingdom. Registered auditors are qualified and experienced in their training, and are subject to stringent regulation by their professional body, under the Companies Act 2006 (UK).
As a chartered management accountant, you are not a registered auditor and cannot carry out an external audit (certainly not in the UK or any country in the European Union).
Your training and exams allow you only to prepare accounts for audit or, in specific conditions, to meet the requirements of an accountant's report.
In the event of a prosecution, the courts would expect a qualified accountant to exhibit a higher standard of knowledge and competence than a lay person.
Although in theory any member (not just MiPs) could provide such a service to a company, in reality there are very real issues of competence and appropriate CPD involved.
If a member in practice who is not a practising certificate holder were to undertake the compilation and filing of accounts, it should be realised that the member could be exceeding their competence which potentially could lead to disciplinary proceedings if their accounts were found to be incorrect in some way, and the case reported to CIMA.
Republic of Ireland
For details on audit exemption in the Republic of Ireland, please visit the companies registration office. For further information regarding qualifying conditions, please see leaflet number 10 – guide to the audit exemption and preparation of companies acts’ individual accounts for small private companies.
Accountant's reports
Legislation in the UK allows the use of accountant's reports ('compliance reports') for small enterprises. As a registered CIMA member in practice, and as long as you meet the qualifications and training requirements of the DTI, you may sign the accounts of:
- sole traders
- partnerships
- limited companies up to GBP5.6 million annual turnover, provided that the company has opted (by minuted decision of the directors) not to have its accounts audited (read the guidance on Audit exemption reports).
See the Charity Commission's guides CC31 and CC32 for information on signing off charity accounts in the UK.
You should note that charities in Scotland come under OSCR rather than the Charity Commission; Northern Ireland Charities come under the NI Department for Social Development; there is a current consultation on Charities Review, which may lead to the creation of an NI Charity Commission.
In each case, your signature should be dated, show your designatory letters (ACMA or FCMA) and the words 'chartered management accountant', and follow a statement such as:
- For proprietorship accounts:
'These accounts have been prepared without carrying out an audit, from records and information provided.'
- To accompany an 'accountant's report':
'I/we have compiled these unaudited accounts, on instructions from the directors, who consider the xompany is exempt from the requirement to hold an audit, in order to assist the xompany to comply with the relevant statutory reporting requirements.'
Notes
1. Statutory instrument 2004 No.16, The Companies Act 1985 (Accounts of small and medium sized enterprises and Audit Exemption) (amendment) Regulations 2004. This threshold applies to financial years ending on or after 30 March 2004 only.
2. There is actually no requirement at present that a person examining a charity's accounts (below GBP90,000) should be a qualified accountant, though the Charity Commission (England and Wales) aims to promote to trustees their preference for the use of accountants.
Under no circumstances should you state you have undertaken or completed an audit or that you are an auditor. Any statement to that effect could lead to legal action and to CIMA disciplinary proceedings being initiated against you.
'Independent examinations' of small charities, in lieu of audits
Members who are not registered members in practice5 may be asked to examine the accounts of local organisations, such as sport clubs or churches, on a voluntary basis.
CIMA permits this voluntary work of examination of accounts without registration, but members should be aware that they could be personally liable for any mistakes made.
In the case of churches, the Diocesan Secretary (Church of England) or equivalent for other churches should supply rules, or the previous examiner should pass them on. You should check for yourself that you satisfy all the requirements laid down.
You may not describe yourself as an 'auditor', nor should you sign any statement stating that you have 'audited' the accounts. If the rules of a charity need to be changed (e.g. to alter a requirement for an 'auditor' to 'examiner') the Charity Commissioners must agree to the proposed alterations6.
In the case of the accounts of clubs and similar groups, the following words should be used:
'I have examined these accounts and believe them to be a true and fair record, based on the information provided.'
Further information
- details of the Companies Act and general procedures for submitting accounts can be obtained from Companies House
- copies of Financial Reporting Standards (FRSs) can be obtained direct from FRC Publications, but a fee is charged.
You may also find these links of use:
SORP (statement of recommended practice) 2005 'accounting and reporting by charities' (operative from 1 April 2005) is available from the Charity Commission.
There is also CPD guidance from the Charity Commission.
- Outside the UK, even in other member states of the European Union, you should be aware that UK rules do not apply. National rules may be even stricter. In the Irish Republic, the current situation is given in the document 'members in practice in the Irish Republic' (PDF 46KB). In France, for example, the Ordre des Experts Comptables is currently strongly resisting any thought that some smaller companies (SAS - sociétés par actions simplifiées) could do without oversight by an auditor.
5. Council regulation 12.1.3 excludes 'services to clubs/societies/charities or similar organisations on an honorarium basis'.
6. Any reference in a club's constitution to 'audit' or 'auditors' should be changed by the AGM to 'examination' or 'examiner' as appropriate, following the club committee's agreement to the proposal; if this does not happen, it will mean that you, as a CIMA member, cannot perform the service.