Let’s talk about audits. They’re not the monster under the bed that many business owners imagine. In fact, a good audit can give you confidence in your numbers, highlight weaknesses in your financial processes, and make your accounts more credible to investors, lenders, and potential buyers.
The rules changed from April 2025, with higher company-size thresholds meaning more businesses can potentially qualify for audit exemption.
In this guide, we’re cutting through the jargon to give you the plain facts about business audits in 2026. You’ll learn whether your company needs one, how to prepare without a last-minute rush, and what auditors actually look for when they examine your accounts.
When Does Your Business Need an Audit in 2026?
For financial years beginning on or after 6 April 2025, a private company may qualify for the small-company audit exemption if it meets at least two of these three conditions:
- Annual turnover: No more than £15 million.
- Balance sheet total: No more than £7.5 million.
- Employees: An average of no more than 50.
These replaced the previous £10.2 million turnover and £5.1 million balance sheet thresholds. The employee limit stayed at 50.
There is an extra wrinkle if your company has been trading for more than one financial year. Company size is not always determined by looking at a single year in isolation – the Companies Act contains rules covering what happens when a company moves above or below the thresholds between accounting periods.
Groups also have their own thresholds and conditions, so you shouldn’t assume that an individual subsidiary qualifies for exemption simply because its own figures fall below the limits.
Double Point has a separate guide to the new company size thresholds if you want to see how the wider accounting classifications changed.
Even where your company qualifies as small, an audit can still be required.
This can happen if:
- Your articles require one: The company’s articles of association can require audited accounts.
- Shareholders demand one: Shareholders holding at least 10% of the relevant shares can require an audit. The request must be made in writing and received at the company’s registered office at least one month before the end of the financial year concerned.
- You’re a public company: Public companies generally require an audit, though limited exemptions may apply, such as for qualifying dormant companies.
- You’re within certain regulated sectors: Banks, authorised insurers, e-money issuers, MiFID investment firms and certain other regulated entities cannot normally use the small-company audit exemption.
- You’re part of a group that doesn’t qualify: Group membership can prevent an otherwise small company from using the exemption, although there are specific exemptions available to some subsidiaries.
Charities, LLPs and some other entities have their own rules, so the company thresholds shouldn’t simply be applied across the board.
For many businesses, though, whether to have an audit isn’t purely a question of whether the law forces you to.
A voluntary audit can add credibility to your financial statements when you’re seeking investment, negotiating bank finance, dealing with a major customer or preparing to sell the business. It can also expose weaknesses in your accounting processes before they turn into bigger problems.
If you’re unsure how your accounts affect your company’s status, Double Point can help with your company accounts and establish which reporting requirements apply.
Different Types of Business Audit and Assurance
Not every financial review is the same thing, and the word “audit” is often used much more loosely in everyday business than it is in company law.
The main distinctions are:
- Statutory audit: A full independent audit required by law. A UK company audit must be carried out by an appropriately registered statutory auditor.
- Voluntary audit: A company that is legally exempt can still choose to have its financial statements independently audited, perhaps because shareholders, lenders or potential buyers want additional assurance.
- Internal audit: Work carried out internally or by outsourced specialists to examine processes, risk management and internal controls. It serves a different purpose from the independent statutory audit of the annual accounts.
- Other assurance work: A business may commission a more targeted review of particular financial information, controls, grants, systems or contractual requirements without having a full statutory financial statement audit.
That distinction matters. If a bank asks for independently verified figures, for example, you need to understand exactly what level of assurance it wants rather than assuming any form of financial review will satisfy the requirement.
The same applies before a funding round or sale. Investors and buyers may want more confidence in the numbers than ordinary unaudited accounts provide, but the exact work required will depend on the transaction.
How to Prepare for an Audit
Regardless of why you’re having an audit, preparation makes the process considerably smoother.
The worst approach is waiting until the auditors arrive before trying to reconcile accounts, find old contracts or explain unexplained balances. Ideally, your accounting records should already be in good order throughout the year.
A practical preparation timetable might look like this.
Three Months Before
Start checking that the records behind your year-end accounts are complete and easy to retrieve.
Typical information auditors may need includes:
- Financial statements: Your draft balance sheet, profit and loss account and other statements required by your reporting framework.
- Bank records: Bank statements and completed bank reconciliations.
- Sales records: Sales ledgers, invoices and supporting contracts.
- Purchase records: Purchase ledgers, supplier invoices and expense documentation.
- Fixed assets: A complete fixed asset register showing additions, disposals and depreciation.
- Stock: Inventory records, stocktake information and valuation workings where relevant.
- Contracts: Major customer, supplier, loan and lease agreements.
- Company records: Board minutes and other relevant statutory or governance records.
- Previous audit information: Prior-year accounts, audit reports and any outstanding matters raised by the previous auditor.
Your auditor will normally issue a more specific information request based on your company and the areas they consider important.
If the underlying bookkeeping and accounts need work first, it’s much easier to deal with that before the audit begins. Double Point can help get your company accounts into shape before they’re handed over for audit.
One Month Before
Now focus on reconciliations, unusual transactions and anything likely to generate questions.
Make sure you can demonstrate:
- Bank reconciliations: Every significant bank account agrees to the accounting records.
- Debtor balances: Outstanding customer balances can be explained and supporting invoices are available.
- Creditor balances: Supplier balances and other liabilities are complete and properly recorded.
- Payroll records: PAYE, pension and payroll balances reconcile with the accounts.
- VAT records: VAT returns reconcile with the underlying accounting records where applicable.
- Approvals: Significant purchases and payments have been properly authorised.
- System access: Appropriate controls exist over who can enter, approve and change financial information.
This is also the time to look closely at anything unusual during the year – large transactions, new loans, major contracts, acquisitions, disposals or changes in the way the business operates.
Auditors are likely to ask about them, so getting the supporting documents together now saves time later.
Two Weeks Before
Make sure the people involved know what the auditors are likely to need.
That doesn’t mean the whole business has to stop for the audit. It means identifying the people responsible for areas such as payroll, sales, purchasing, inventory and finance so questions can be answered promptly.
If the audit is taking place remotely, make sure the documents can be shared securely and the auditor has appropriate access to whatever systems have been agreed.
The more organised the information is, the less time gets wasted chasing documents and answering the same questions repeatedly.
What Do Auditors Actually Look At?
A statutory audit isn’t designed to check every transaction in your business.
The objective is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error, and to give an independent opinion on the accounts.
That means auditors focus their work on the areas where a material error is most likely or would matter most.
Revenue Recognition
Revenue is often one of the most important areas because recording income too early or too late can materially change the reported profit.
Auditors may examine invoices, contracts, delivery records and payments to establish whether revenue has been recorded in the correct accounting period.
For businesses with subscriptions, staged projects or long-term contracts, this can become particularly important. If income is recognised over time rather than at a single point, you need a clear accounting policy and evidence supporting the amounts recorded.
Expenses and Purchases
Auditors also test costs to establish whether transactions are genuine, complete and recorded in the correct period.
They will usually select samples rather than checking every expense individually.
Common problems include invoices recorded in the wrong accounting period, missing supporting documents, incorrect accruals and expenses that have been posted to the wrong part of the accounts.
Having clean bookkeeping throughout the year makes this part of an audit considerably easier.
Assets and Inventory
Where physical assets make up a significant part of your balance sheet, auditors need evidence that those assets actually exist and have been valued appropriately.
For inventory, this can involve attending or reviewing stock counts, testing quantities and checking how stock has been valued. For fixed assets, they may inspect invoices, ownership records and significant additions or disposals.
They will also consider depreciation and whether there are signs that an asset’s carrying value may no longer be recoverable. A reliable fixed asset register showing purchase dates, original costs, disposals and depreciation can save a great deal of time.
Bank, Cash and Borrowings
Cash is another fundamental audit area.
Auditors will normally test bank balances and reconciliations and may obtain independent confirmation of balances directly from banks or other financial institutions.
Borrowings also matter. Loan agreements can contain repayment obligations, interest terms, security and financial covenants that need to be reflected correctly in the accounts and disclosures.
Related Party Transactions
Transactions involving directors, shareholders, group companies and other related parties often receive particular attention because they may not take place on the same terms as transactions with an independent third party.
The auditor will consider whether related parties and relevant transactions have been identified, accounted for correctly and disclosed as required by the applicable accounting standards.
That doesn’t mean every related-party transaction has to be at market value. The important point for the audit is that the transaction is properly understood, recorded and disclosed where required.
Going Concern
Auditors also consider whether management’s use of the going-concern basis is appropriate.
If the business has cash-flow difficulties, large debts, expiring finance facilities, loss-making operations or uncertainty over future funding, expect the auditor to look closely at management’s forecasts and assumptions.
That can include cash flow forecasts, budgets, financing agreements, and evidence of what happens after the balance sheet date.
This is one reason getting organised before the audit matters – a forecast built the night before the auditor asks for it is unlikely to be as convincing as one the business genuinely uses to manage its finances.
Estimates and Judgements
Not everything in a set of accounts is a hard number taken directly from an invoice or bank statement.
Management may need to make judgements about areas such as bad-debt provisions, asset values, useful economic lives, stock provisions and other estimates.
Auditors assess the assumptions behind those figures and whether they’re reasonable given the available evidence.
If an important balance depends heavily on judgement, document how you reached it rather than relying on someone remembering the reasoning several months later.
After the Audit: What Happens Next?
At the end of a statutory audit, the auditor issues an independent auditor’s report.
The central part is the audit opinion – whether the financial statements give a true and fair view and have been properly prepared under the relevant financial reporting framework and company law.
An audit opinion may be unmodified, or it may be modified if the auditor identifies a sufficiently serious problem or cannot obtain sufficient appropriate evidence.
One misconception is that the statutory audit report itself typically contains a long list of recommendations for improving the business.
It doesn’t.
Where auditors identify significant weaknesses in internal controls or other matters that management should address, those points are normally communicated separately to management and those charged with governance.
So after the audit you may have two different things to consider: the formal audit report attached to the accounts, and separate feedback about controls or processes.
Don’t ignore that second part. If the auditor has identified a genuine weakness, fixing it now can reduce risk and make next year’s audit easier.
What an Audit Doesn’t Do
It’s also worth being clear about what an audit doesn’t guarantee.
An audit provides reasonable assurance – not absolute certainty.
It isn’t a guarantee that:
- Every transaction is correct: Auditors commonly use sampling and risk-based testing rather than checking every entry.
- No fraud exists: Auditors consider the risk of material fraud, but an audit cannot guarantee that every fraud will be discovered.
- The business is financially healthy: Audited accounts can still belong to a company facing commercial difficulties.
- Every control is effective: The audit isn’t designed to provide an opinion on every internal control in the business.
- Your tax affairs are automatically correct: A financial statement audit and a detailed tax compliance review are different exercises.
Understanding those limits makes the audit more useful. Its purpose is to give users of the accounts independent assurance over the financial statements – not to certify that every aspect of the company is perfect.
Making an Audit Work for Your Business
If you’re required to pay for an audit anyway, it makes sense to get as much practical value from the process as you can.
A well-run audit can help you:
- Strengthen financial reporting: Weak reconciliations and inconsistent processes often become obvious during audit work.
- Improve controls: Issues around approvals, access and segregation of duties may come to light.
- Build credibility: Audited financial statements can give lenders, investors and buyers greater confidence in the numbers.
- Prepare for transactions: An established audit history can make financial due diligence easier when raising finance or selling a business.
- Improve year-end processes: Each audit can show you which areas create unnecessary work and should be cleaned up before the following year.
The best preparation is good financial management throughout the year.
Regular bookkeeping, reconciliations, proper supporting documents and clear approval processes make an audit easier – but they’re also things a well-run finance function should be doing anyway.
How Double Point Can Help With Your Audit
At Double Point, we help businesses determine whether the audit rules apply and prepare their financial records for the process.
We can help you:
- Check your audit requirement: Review your company size, group structure and circumstances against the current thresholds.
- Prepare your accounts: Make sure your company accounts are complete and properly prepared before audit work begins.
- Get the records ready: Reconcile balances and organise the supporting information your auditor is likely to request.
- Strengthen financial processes: Identify bookkeeping and control weaknesses that create unnecessary problems at year end.
- Work through audit queries: Help provide the accounting information and explanations needed during the audit.
- Address previous issues: Work through accounting problems or control weaknesses identified in earlier years.
If a statutory audit is required, it must be carried out and signed by an appropriately registered auditor. We can make sure your accounts and records are properly prepared and help make the process as straightforward as possible.
Whether you’re approaching your first audit, dealing with a change in company size or simply trying to establish whether you still need one under the new thresholds, getting the answer early avoids unnecessary work later.
Book a consultation with Double Point and we’ll help you work out what your company needs and get the accounts ready properly.