Many business owners assume that if their company falls below the statutory audit thresholds, they are automatically exempt from having an audit. However, this is not always the case.

A company’s Articles of Association can contain provisions that require the company to have its annual financial statements audited, even where there is no legal requirement under the Companies Act.

How Can the Articles Create an Audit Requirement?

Some Articles of Association include clauses stating that the company’s annual accounts must be audited each year.

These clauses are often found in:

  • Family-owned businesses with multiple shareholders
  • Joint venture companies
  • Companies with external investors
  • Businesses where lenders have historically requested additional financial oversight

In these circumstances, the requirement for an audit arises from the company’s constitution rather than company law.

Why Does This Matter?

A company may be eligible for audit exemption under the statutory size thresholds but still be contractually required to undertake an audit because of its Articles.

This can result in unnecessary compliance costs if the original reason for the audit requirement no longer exists.

For example, a company may have introduced an audit requirement when outside investors were involved, but the provision remains in place long after those investors have exited the business.

Can the Requirement Be Removed?

In many cases, yes.

If shareholders agree that an audit is no longer required, the Articles of Association can usually be amended to remove the relevant provision.

The process generally involves:

  1. Reviewing the existing Articles.
  2. Identifying the audit clause.
  3. Obtaining shareholder approval.
  4. Adopting amended Articles.
  5. Filing the updated Articles with Companies House.

The level of shareholder approval required will depend on the company’s circumstances, but amendments to Articles require an affirmative vote of at least 75% to pass a special resolution

Points to Consider Before Making Changes

Before removing an audit requirement, it is important to consider whether any stakeholders still rely on audited financial statements.

This could include:

  • Banks and lenders
  • Investors
  • Minority shareholders
  • Potential purchasers of the business

Removing the requirement may reduce compliance costs, but it should not compromise the confidence of those who rely on the company’s financial information.

Regular Reviews Are Important

Many companies operate under Articles that were drafted years ago and may no longer reflect the current ownership structure or objectives of the business.

A periodic review can help identify outdated provisions that create unnecessary administration and cost.

Cube Partners Tip

If your company is below the statutory audit thresholds but continues to have an annual audit, it is worth reviewing your Articles of Association. We regularly find historic audit clauses that no longer serve a commercial purpose and can often be removed with the appropriate shareholder approval, helping businesses reduce compliance costs while maintaining good governance.