When does a UK startup need an audit, and how to be ready

A company generally needs a statutory audit if it exceeds two of three size criteria, turnover, balance sheet total and average employees, for the relevant periods, or if it is part of a group that does, or if its articles or shareholders require one.

Many startups hit an audit long before the statutory thresholds because an investment agreement requires it. Check your documents; it is a contractual trigger founders often forget until it is due.

Revenue recognition first, especially deferred income and cut-off. Then share capital and equity instruments, R&D claims, related party transactions including director loans, and going concern given the runway position.

Going concern is the one that surprises founders. Auditors need evidence of at least twelve months of viability from the signing date, which usually means a board-approved forecast and, sometimes, investor support letters.

Clean, reconciled monthly management accounts, a documented revenue policy with supporting schedules, a cap table reconciled to Companies House, signed contracts filed and accessible, and a fixed asset register.

The cost of a first audit is driven almost entirely by how much of the above the auditor has to build themselves.

Start three months before the year end, not after it. Agreeing accounting policies, sample sizes and the going concern evidence in advance turns a fraught eight-week process into a routine one.

We prepare companies for audit and work alongside the auditor rather than duplicating them.