A statutory audit is an external, independent examination of a company’s financial statements that is required by law. In the UK, the Companies Act 2006 sets out which companies need one. The point is to give shareholders, lenders, and other readers of the accounts a “true and fair view” conclusion they can rely on.
This guide covers the statutory audit definition, what your accountant actually does during the work, and the difference between a statutory audit and a non-statutory audit. It also explains the size threshold and audit exemption rules for UK companies.
Statutory audit definition
The statutory audit meaning is straightforward: it’s an audit that the law requires. The rule sits in s475 of the Companies Act 2006, supplemented by the Charities Act 2011 for charities and sector-specific rules for pension schemes, FCA-regulated firms, and academy trusts. The auditor must be independent of the business, registered with a supervisory body (ICAEW, ACCA, or ICAS in the UK), and follow the International Standards on Auditing (UK) when forming the opinion.
“Statutory” means “set by statute”: that is, by an Act of Parliament. The size threshold and exemption tests sit alongside s475 in the same legislation. Section 475 says directors must arrange a check of the financial statements unless the company qualifies for exemption.
Purpose of a statutory audit
The purpose is to give an independent opinion on whether the financial statements show a true and fair view of the company’s financial position and performance, in line with UK accounting standards. The opinion is addressed to the shareholders, but it goes on the public record at Companies House and is read by lenders, suppliers, customers, regulators, and HMRC.
- Transparency. Shareholders who don’t run the business need a way to check that what management is telling them is real. The independent auditor is the second pair of eyes.
- Compliance. Regulators and lenders rely on audited accounts. Without an audit opinion, those readers have to take the directors’ word for the figures.
- Confidence. A clean audit report makes it easier to raise finance, sign new contracts, and price the business. A qualified opinion is a flag that something is wrong.
The work also performs a check on the directors’ compliance with their duties to keep proper financial records and to prepare accounts that meet the Companies Act.
Who needs one in the UK?
Most UK companies are exempt because they are small. To qualify for the small-company exemption, a business must meet two of the following criteria for the financial year:
- turnover not more than £15 million
- balance sheet total not more than £7.5 million
- not more than 50 employees on average
The £15m / £7.5m / 50 employees figures apply for accounting periods starting on or after 6 April 2025. Earlier periods used £10.2m / £5.1m / 50. Check which set applies to your year-end before relying on the test. Most private companies in the UK fall below these limits; most private limited firms therefore have audit exemption.
Some entities can’t rely on exemption even if they pass the size tests. These include public companies, FCA-authorised firms, insurance firms, banks, and any private business that’s part of a group containing one of those entities. Charities and academy trusts have their own audit requirements separate from the company tests.
Companies in the UK that exceed the size tests are legally required to have an audit. The trigger is rarely a surprise: directors usually know two years in advance that the audit threshold is approaching, because growth plans are visible from the management accounts.
If you want to walk through your situation, see our guides on UK audit thresholds and exemptions and do I need an audit?.
Which companies require it?
Businesses that don’t meet the small company tests, plus listed public companies, FCA-regulated firms, and any entity whose articles or shareholders demand it. A 10% shareholder block can also force one by written notice under s476 of the same legislation, even where exemption would otherwise apply.
The audit process: what actually happens
A typical engagement runs in five phases over six to ten weeks for a private company. Group work stretches out longer.
- Planning. The accountants meet the directors, set the scope, agree the timetable, and assess risk.
- Interim work. Optional for smaller companies. The team tests internal controls and walks through the key reporting processes before year-end.
- Year-end fieldwork. Most testing happens here: substantive procedures on revenue, expenses, balance sheet items, and disclosures. The team confirms balances with banks, customers, and suppliers.
- Reporting. The accountants draft the audit report, raise findings with management, and finalise adjustments. Directors sign the financial statements; the senior statutory auditor signs the report.
- Filing. Signed accounts and report go to Companies House and HMRC.
Our audit process overview covers each phase in more detail.
Difference between a statutory audit and a non-statutory audit
The mechanics are similar. The same standards apply (ISA UK), the same testing approach, the same form of opinion. What differs is the trigger.
| Statutory | Non-statutory | |
|---|---|---|
| Required by law? | Yes | No |
| Why it happens | Legal requirement | Director, shareholder, lender, or grant funder asks for one |
| Auditor must be registered | Yes | Best practice, not required |
| Filed at Companies House | Yes | Not normally |
The voluntary variant is sometimes called a voluntary audit. The two phrases mean the same thing in UK practice. We cover the use cases on our voluntary audit page: typical reasons include a private equity investor asking for one, a grant funder requiring assurance, or directors wanting an independent check before a sale.
Statutory vs internal audit
Internal review is a separate function. Internal staff are usually employees (or contracted in), and they look at controls, processes, and risk management on an ongoing basis. They report to the board, not to the shareholders. The internal work doesn’t produce an opinion on the financial statements and doesn’t substitute for the statutory exercise.
The external auditor running the statutory engagement can take comfort from internal findings, but they have to do their own testing on the figures. A larger company often has both: in-house monitoring working through the year, the statutory engagement at year-end. Smaller businesses typically have neither, until growth pushes them through the size limit.
Benefits of a statutory audit
For a company that’s just crossed the audit threshold, the first year feels like a cost rather than a benefit. The benefits show up over time:
- Easier finance. Lenders cut risk weight on audited accounts. Audited figures often unlock better loan terms or higher credit limits.
- Cleaner internal controls. The accountants’ review of the financial reporting cycle regularly turns up weaknesses the directors didn’t know about. Fixing them makes next year’s work faster and reduces fraud risk.
- Stronger negotiating position. When you sell the business, raise equity, or bid for a contract, audited accounts cut diligence time. A buyer doesn’t have to second-guess the figures.
- Director protection. The opinion gives independent backing to the directors’ statement that the accounts are true and fair.
Who carries one out?
The work must be carried out by a registered auditor. In the UK that means an individual or firm registered with the Institute of Chartered Accountants in England and Wales (ICAEW), ACCA, or ICAS. The firm has to be independent of the company being audited; they can’t have a financial interest, hold shares, or be connected to the directors.
The audit register is maintained by the Financial Reporting Council. You can check whether a firm is registered through the relevant body’s online directory. Audit Group is part of Jack Ross Chartered Accountants, established 1948, an ICAEW Registered Auditor. We act for limited companies across financial services, charities, academies, manufacturing, technology, and professional services firms.
Common questions
What is the meaning of statutory audit?
An audit that is required by law. The UK requirement sits in the Companies Act for businesses and the Charities Act 2011 for charities. Smaller firms are usually exempt; medium-sized and large companies, listed entities, and regulated firms have to have one.
What is the difference between a statutory audit and a regular audit?
“Regular audit” isn’t a defined UK term. People use it to mean either a routine internal check or a non-statutory engagement done at the request of management. The statutory variant is specifically what the law requires and produces a formal report.
What is a statutory auditor in the UK?
A person or firm authorised under the Companies Act to perform the work. They must be a member of a recognised supervisory body and registered on the audit register. Every report is signed in the name of a senior statutory auditor (a named individual) and the firm.
How often is it done?
Once a year, for each financial year the company is in scope. There is no rolling element; it’s a single annual exercise.
Is it required by law?
Yes, for any UK business that doesn’t meet the exemption tests, plus listed entities, FCA-regulated firms, and similar. Most small private firms are exempt.
Get a fixed-fee proposal
If your company is in scope, or you’re not sure whether it is, we can give you a fixed fee within two working days. Audit Group acts for businesses and charities across the UK. Send us last year’s accounts and a short note on what’s changed, and we’ll come back with a fee, a timetable, and the team who would lead the engagement.
Common questions
What is the difference between an auditor and a statutory audit?
An auditor is the person or firm doing the work. A statutory audit is the engagement they carry out. To put it plainly: the auditor is the “who”, the statutory audit is the “what”. A UK statutory auditor must be a registered auditor regulated by a Recognised Supervisory Body such as ICAEW or ACCA, holding a current audit-firm registration with an individual Responsible Individual signing the report. The statutory audit itself is the legally required examination of a company’s financial statements under the Companies Act 2006, conducted to ISA (UK) standards, ending in a signed audit opinion filed with Companies House. You need both: a registered auditor to do the statutory audit.
