Facing your first statutory audit can feel like an exam you didn’t know you’d signed up for. Your accountant mentions the audit threshold, your finance team starts talking about workpapers, and suddenly there’s an audit team arriving next quarter and a long list of requests in your inbox. The good news: a first statutory audit is structured, predictable, and (with the right preparation) survivable.
This is a guide for UK companies going through their first statutory audit in 2025. It covers what a statutory audit actually is, when companies need one, what to expect in the audit process, how to prepare your finance team, and how to choose the right auditor. Whether you’re preparing your first audit for a growing private limited company, a subsidiary of a foreign parent, or a company crossing the threshold after a strong year, the principles are the same.
What is a statutory audit?
A statutory audit is an independent examination of your company’s financial statements by a registered statutory auditor, required by the Companies Act 2006. The auditor forms an audit opinion on whether the accounts give a true and fair view of the company’s financial position. That opinion is published with your company accounts at Companies House and relied on by stakeholders including lenders, shareholders, HMRC, and any future investors or buyers of the business.
A statutory audit isn’t just about compliance. Done properly, it improves audit readiness for future years, strengthens systems and controls, and flags weaknesses before they become problems. It also adds value to the business by giving buyers, banks, and stakeholders confidence in the numbers.
The work is done under International Standards on Auditing (ISAs UK) and overseen by the Financial Reporting Council (FRC) and professional bodies including the ICAEW and ACCA. A statutory auditor must be a registered auditor, and any audit firm doing this work must be registered with a recognised supervisory body.
Does your business need a statutory audit?
In the UK, a company must undertake a statutory audit unless it qualifies for an audit exemption. Following the April 2025 threshold increase, a private limited company is exempt if it meets at least two of the following three criteria for two consecutive financial years:
- Turnover not more than £15 million
- Balance sheet total not more than £7.5 million
- Not more than 50 employees on average
These thresholds apply from 6 April 2025. Companies that crossed them before that date continue to follow the previous £10.2m / £5.1m / 50 rules. If you’re close to the threshold, read our full guide to UK audit thresholds and exemptions or try the audit threshold calculator to see where you stand.
Some companies fall outside the exemption regardless of size. Public companies, subsidiaries of listed groups, insurance companies, FCA-regulated firms (including those subject to CASS rules on client money), and certain charities must undergo an audit. Companies with investors or lenders who contract for audited accounts also need one, even if the Companies Act exempts them.
Some companies also choose to undergo a voluntary audit even when they qualify for exemption. Reasons include preparation for future growth, loan covenants, shareholder confidence, and getting the company audit-ready before an exit or fundraise.
What to expect in your first statutory audit
The audit process runs over several weeks, sometimes months for complex companies. A typical first audit follows six stages:
- Engagement and planning. The auditor sends an engagement letter, the audit scope is agreed, and the audit team gains an understanding of your business, systems and controls, and the risks of material misstatement.
- Pre-audit preparation. Your finance team prepares the draft financial statements, balance sheet reconciliations, and supporting schedules the auditor will need.
- Interim fieldwork (optional). For larger companies, the audit team may visit before the year end to test controls and review key transactions. This shortens the final audit.
- Year-end fieldwork. The audit team spends time with the finance team working through the accounts, testing balances, assessing internal control, and gathering appropriate evidence to support the audit opinion.
- Review and clearance. The auditor reviews findings, the partner signs off, and the audit report is finalised. Any significant findings are discussed with management and (for larger companies) the audit committee.
- Signing and filing. Directors approve and sign the financial statements, the auditor signs the audit report, and the accounts are filed at Companies House within nine months of the financial year end.
First-time audits almost always produce more findings than subsequent years. That’s normal. Audit isn’t just about compliance – it’s about improving the financial reporting discipline of the business over time.
Preparing for your first statutory audit: what your finance team needs
Planning is essential. The difference between a smooth audit and a painful one is preparation. Start at least three months before the audit team arrives. Six is better.
Your finance team needs to provide a full set of working papers that support every number on the balance sheet and profit and loss. This isn’t an exhaustive list, but every first statutory audit will ask for:
- Trial balance and draft financial statements – reconciled, complete, and agreed to the ledger.
- Bank reconciliations for every bank account at year end, with confirmation letters from the banks.
- Debtors and creditors listings with age analysis, including post year-end receipts and payments.
- Fixed asset register with additions, disposals, and depreciation.
- Stock valuation schedules including physical count records, cut-off testing, and slow-moving stock provisions.
- Payroll records reconciled to the general ledger, including year-end PAYE and pension returns.
- Tax computations and supporting schedules, usually prepared by your accountant.
- Revenue recognition analysis showing how sales are recognised, especially around year-end cut-off.
- Statutory records: register of members, directors’ register, minutes of board meetings, and signed annual return.
Audit-ready finance teams understand your business well enough to anticipate the auditor’s questions. If the auditor asks why a particular debtor is provided against, the answer should be ready with the underlying correspondence. Auditors run analytical procedures comparing this year to last – unusual movements need explanations prepared before fieldwork, not discovered during it.
A good audit team works to improve audit outcomes every year by building a structured understanding of your business, its systems, and its risks. By year three the audit experience is much smoother than year one because both sides know what to expect. If you’re reading this before your first audit, remember that this exercise gets easier – the preparation pays back.
Common pitfalls in a first statutory audit
Problem areas often arise in the same places year after year, and companies need to plan around them. The most common first-audit issues are:
- Revenue cut-off. Whether a sale belongs in this financial year or next is a common first-audit finding. Make sure your cut-off testing is clean and documented.
- Stock counts. If the auditor wasn’t present at a year-end stock count, they need alternative evidence. For a first audit, this can be difficult to provide retrospectively.
- Going concern assessment. Directors have to sign off that the company is a going concern. For smaller companies this is often a paragraph. For companies with tight cash flow, it needs a cash flow forecast and sensitivity analysis.
- Related party transactions. Loans from directors, inter-company recharges, and transactions with shareholders all need to be identified and disclosed. First-time audit clients often miss these.
- Systems and controls. If your accounting system doesn’t produce an audit trail (who posted what, when), the auditor will flag it. Cloud systems like Xero and QuickBooks handle this well; some older systems do not.
- Opening balances. For a first audit, the auditor has to get comfortable with the opening position. That means reviewing the prior year accounts, confirming bank and stock balances at the opening date, and (occasionally) requesting extra evidence from the previous accountant.
Good auditors flag these early and help the finance team get on top of them. That’s the value of appointing the right audit firm, not the cheapest one.
Choosing your first auditor
Appointing the right auditor matters. This is the person who’ll sign your audit opinion, advise your board, and work with your finance team over a long period. Three things to check:
- Registered auditor status. Any statutory auditor must be registered with a recognised supervisory body (ICAEW, ACCA, CAI or AAPA). Verify this before you engage.
- Sector experience. A chartered accountants firm with a track record in your sector understands the accounting policies that matter. For a tech company, that might mean revenue recognition under IFRS 15. For a charity, SORP compliance. Ask directly what similar clients they audit.
- Team continuity and partner access. Ask how much time the partner spends on your audit and how stable the team is. First audits are easier when the people doing the work next year are the same as this year.
Read our guides on how to change auditors in the UK and running an audit tender for the practical mechanics. For growing businesses the conversation often narrows to Big 4 versus mid-tier – our comparison of Big 4 vs mid-tier audit firms covers when each wins. For private equity-backed companies there are specific considerations in our guide to choosing an auditor for PE-backed companies.
The management letter and getting real value from the audit
After the audit report is signed, you’ll receive a management letter (sometimes called a letter of recommendation) with audit findings. The management letter highlights weaknesses in systems and controls, accounting treatments worth revisiting, and improvements for the following year. First-time audits often generate a longer letter than subsequent years.
The finance team that treats the management letter as a to-do list, not criticism, gets real value from the process. Most findings are about making the company’s financial reporting tighter, faster, and more useful to management teams, not about blame.
Good audit firms follow up proactively in the following year to check that findings have been addressed. That’s how a statutory audit moves from compliance – it’s a cost you’d rather avoid – to something that actively supports your business.
Common questions about a first statutory audit
What are the steps in a statutory audit?
Engagement and planning, risk assessment, interim fieldwork (optional), year-end fieldwork, review and clearance, signing and filing. The whole process usually takes 6-12 weeks from the end of the financial year, depending on company size and complexity.
What are the requirements for a statutory audit?
Under the Companies Act 2006, UK private limited companies need a statutory audit unless they qualify for audit exemption (turnover not more than £15m, balance sheet total not more than £7.5m, not more than 50 employees on average – meeting at least two for two years). Public companies, subsidiaries of listed groups, and regulated firms always need an audit regardless of size.
What does a statutory auditor actually do?
The auditor reviews the company’s financial statements for material misstatement, tests internal control, confirms balances with banks and other third parties, runs analytical procedures, and forms an independent audit opinion on whether the accounts give a true and fair view of the company’s financial position.
How long does a first statutory audit take?
For an owner-managed company with straightforward accounts, 6-8 weeks of elapsed time from end of financial year to signed audit report is typical. Larger or more complex groups run 10-14 weeks. Planning ahead is essential – auditors allocate resources months in advance.
How much does a first statutory audit cost?
For a UK private limited company just above the audit threshold, a first statutory audit typically costs £7,500 to £20,000 depending on turnover, group structure, and the state of the accounting records. Complex first audits with weak opening balances, stock issues, or multiple subsidiaries cost more. See our full guide to how much a statutory audit costs.
Can I avoid a statutory audit if I don’t want one?
If your company meets the audit exemption tests, yes – you can choose not to have one. But many companies choose to undergo a voluntary audit anyway for stakeholder confidence, loan covenants, or exit preparation. See our guide to the benefits of a voluntary audit.
What’s the difference between an audit and an accountant’s review?
An accountant’s review is a much lower level of assurance than a statutory audit. A review uses analytical procedures and inquiry, while an audit actively tests balances, confirms with third parties, and forms an opinion under auditing standards. Only a statutory audit produces a full audit opinion under the Companies Act 2006.
Next steps
If your company is approaching its first statutory audit, the best thing you can do is start early. Read our audit readiness checklist, use the audit calculator to check your position, and talk to a registered auditor about scope and timing before the end of the financial year.
Audit Group is a specialist UK audit firm based in Manchester, part of Jack Ross Chartered Accountants (ICAEW-regulated, established 1948). We audit first-time companies across tech, professional services, property, manufacturing, and charities. To discuss your first statutory audit, get in touch or request a proposal directly.
