A statutory audit and non statutory audit differ primarily in their legal requirements. A statutory audit is mandatory because it is required by law. A non-statutory audit, on the other hand, is voluntary.
Knowing which type of audit applies to you can help avoid penalties. Plus, it could even make your business look more appealing to investors.
In this article, you’ll learn about:
- Statutory audits vs non-statutory audits
- The types of statutory audit vs non statutory audit
- Which audit type is right for your business
- And much more…
Let’s get into it!
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What Exactly is an Audit Anyway?
An audit is essentially an independent financial check-up for a company. An outside expert called an auditor, steps in to review the business’s financial reports and records. This is to make sure they are accurate and follow all the established accounting rules and laws.
They don’t go through every single transaction. Instead, they perform enough tests to form an opinion on whether the company’s financial picture is a “true and fair” view of its situation.
The main goal of an audit is to give confidence to those who rely on these numbers, like investors, banks, and regulators. When the auditor gives the all clear, everyone can breathe easier knowing the numbers are likely trustworthy.
Okay, now let’s get back to statutory audits vs non-statutory audits.
What is a Statutory Audit?
A statutory audit is a required review of a company’s financial records. The big point of it is to make sure the company’s financial reports are spot on. It also checks that everything follows the rules and accounting standards in the UK.
Statutory audit is especially important for external parties such as shareholders, creditors, and regulators. Because they rely heavily on this information to make informed decisions.
Types Of Statutory Audits
In the UK, there are several types of statutory audits, including:
- Company/Financial Statement Audits: This is the most common type of statutory audit. The audit checks the financial statements to make sure they show the company’s true financial position.
- Audits for Regulated Industries: Some industries need audits, no matter their size. This is to protect public funds or client assets. These industries include banking companies, authorised insurance companies, investment firms, and e-money issuers.
- Public Sector Audits: Government groups like councils and housing associations also need audits. This ensures they use public funds responsibly and follow government rules.
- Group Audits: If you are a parent company, you will need an audit for the entire group, including subsidiaries. Exemptions may apply in some cases.
If you want the detailed guidance on audit requirements and exemptions in the UK, you can check out the official government guidance on audit exemptions for private limited companies.
Statutory Audit Example
A great example of who needs a full audit is a big public company listed on the London Stock Exchange. The law says all those big companies have to get a statutory audit every single year, regardless of their size. This helps keep the market clear and open, which makes investors feel more confident.
Another example would be a big private company here in the UK. If they get too large and go over certain limits, they must bring in a registered auditor. Then they have to file those checked accounts publicly at Companies House for everyone to see.
What Are the Benefits of Statutory Audits?
- Catch fraud or mistakes early on
- Make sure everyone is following UK law
- Build up trust with people who invest money and lend cash
- Make the company look more credible to both suppliers and clients
Who Actually Needs a Statutory Audit in the UK?
In the UK, whether a company requires a statutory audit depends primarily on its size and the nature of its business.
Companies That Must Have an Audit (Regardless of Size)
Some companies cannot claim small company exemptions and must undergo a statutory audit every year. This applies regardless of their turnover, assets, or number of employees.
- Public companies (PLCs) unless they are dormant.
- Companies in regulated industries such as authorised insurance companies, banking companies and e-money issuers.
- Markets in Financial Instruments Directive (MiFID) investment firms and UCITS management companies.
- Corporate bodies whose shares have been traded on a UK-regulated market.
- Pension schemes and labour relations bodies
- Charities that meet specific, separate thresholds
Small Private Companies
Most private limited companies in the UK are exempt from a statutory audit if they qualify as “small”. To be considered small, a company must meet at least two of the following three criteria for two consecutive financial years:
| Criteria | Threshold (for financial years starting on/after 6 April 2025) | Threshold (for financial years starting before 6 April 2025) |
| Annual Turnover | Not more than £15 million | Not more than £10.2 million |
| Balance Sheet Total | Not more than £7.5 million | Not more than £5.1 million |
| Average Employees | Not more than 50 | Not more than 50 |
Note: Transitional arrangements allow companies to use the new, higher thresholds for the 2025 financial year even if they didn’t meet them the year prior, provided they qualify as small under the new rules in both years.
Other Mandatory Triggers
Even if a company is exempt based on size or industry, a statutory audit is still required if:
- Its own articles of association specify that an annual audit must take place.
- A sufficient number of shareholders (representing at least 10% of the voting shares) formally request one in writing, provided the request is received by the company at least one month before the end of the financial year.
- It is a UK subsidiary that is part of a larger group that is not considered “small” on a worldwide basis, unless a specific parent company guarantee is provided.
Statutory Audit Report
The statutory audit report is the formal opinion issued by the auditor. It states whether the financial statements are accurate and comply with UK accounting standards. This report is filed with Companies House and shared with stakeholders.
What is Non Statutory Audit?
A Non-Statutory Audit is completely voluntary. The law does not force you to have one but you choose to have it because it makes good business sense.
You decide the scope of the audit. You might ask the accountant to have a full voluntary audit or just focus on a specific area.
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Non Statutory Audit Types
Non statutory audits come in several different forms. This includes:
- Financial Audit: This is the most common type. It involves reviewing the company’s financial statements, such as the balance sheet, profit and loss account and cash flow statements.
- Internal Control Audit: This audit checks how well a company’s internal controls, processes, and risk management systems are working. It helps find weaknesses or inefficiencies in how the company manages its finances and operations.
- Compliance Audit: A compliance audit checks if a business is following the relevant laws, regulations or its own internal policies.
- Management Audit: This audit looks at how well the company’s management team is performing and making decisions. It helps identify areas where leadership and management can improve.
Non Statutory Audit Example
Let’s say your company qualifies for the audit exemption but you are trying to secure a big bank loan to expand. The bank is nervous and says, “We’ll give you the money but only if you provide us with accounts audited by an independent firm.”
That is a Non-Statutory Audit. You choose to have it because the commercial reward (getting the loan) outweighs the cost.
Who Actually Needs a Non-Statutory Audit in the UK?
A non-statutory audit is a voluntary check of a business’s records. You are never legally forced to have one in the UK. You only “need” one if a specific situation or stakeholder asks for it.
Here is who actually needs a non-statutory audit:
- Small Businesses & Exempt Companies: If your company is too small to require a legal audit, you might choose a voluntary one. Banks often ask for this before they approve a big loan. It makes them feel safer about lending you money.
- Business Owners Who Want Clarity: You might want an auditor to check your books just for your own peace of mind. They can look for errors, potential fraud, or suggest better ways to manage your money.
- Companies That Are Selling: When you are selling your business, the buyer will bring in their own team to check all your numbers. This is a form of non-statutory audit (called “due diligence”).
- Specific Stakeholders:
- Lenders/Banks: They often demand an audit as a condition for finance.
- Internal Management: They use internal, non-statutory audits to review things like IT security, HR compliance, or operational efficiency.
The decision is entirely yours. Non statutory audit is a tool you use to build trust with specific people. Or improve how your own business works internally.
Non Statutory Audit Reports
The report from a non-statutory audit is flexible. It may include confirmation that accounts are reliable, recommendations for improving internal controls, identification of risks or inefficiencies, and assurance for stakeholders such as banks or investors.
Unlike statutory audit reports, these are not filed with Companies House. They are usually shared internally or with specific stakeholders.
Statutory Audits vs Non-Statutory Audits: Key Differences
Now that we know what each audit type is and why it’s important, here is a direct comparison of statutory audits vs non-statutory audits, highlighting their primary distinctions.
Legal Requirement
Statutory Audit: Required by law for certain businesses.
Non-Statutory Audit: Voluntary and not required by law.
Purpose
Statutory Audit: Primarily to ensure compliance with accounting standards and legal regulations.
Non-Statutory Audit: Can be for internal improvements, lender requirements, or to satisfy shareholders.
Auditor
Statutory Audit: Must be conducted by an independent external auditor.
Non-Statutory Audit: Can be done by internal auditors or external professionals.
Frequency
Statutory Audit: Typically done annually, as required by law.
Non-Statutory Audit: Can be done as needed, not on a fixed schedule.
Cost
Statutory Audit: Generally, more expensive due to legal requirements and the need for an external auditor.
Non-Statutory Audit: Can be less expensive, as the business has more control over the scope and auditor selection.
Public Disclosure
Statutory Audit: Results are often filed with Companies House and made publicly available.
Non-Statutory Audit: Results are typically kept internal, though they may be shared with specific stakeholders.
Focus Areas
Statutory Audit: Broad and covers all areas of financial reporting to ensure compliance.
Non-Statutory Audit: More flexible and focused on specific areas that the business wants to review.
Statutory Audits vs Non-Statutory Audits: The Key Differences Summarised
The fundamental distinction between statutory audits vs non-statutory audits lies in their legal standing and purpose.
| Criteria | Statutory Audit | Non-Statutory Audit |
| Legal Requirement | Yes | No |
| Purpose | Compliance & stakeholder assurance | Insight, risk management, and building trust |
| Scope | Defined by law/regulation | Flexible, customised as per business needs |
| Auditor Type | External, registered, independent | Internal or external (external recommended) |
| Reporting | Formal, public document | Private report/advice for specific parties |
Statutory Audits vs Non-Statutory Audits: Which Audit Type Is Right For Your Business?
So, which is it for your company: Statutory Audits vs Non-Statutory Audits? Well, the right audit type comes down to legal requirements versus a strategic business choice.
Opt for a Statutory Audit If:
- Your business is legally required to have one
- You want to boost your business’s credibility and transparency for investors, clients, or the public.
- You’re preparing for an IPO or other major public offering.
Opt for a Non-Statutory Audit If:
- Your business doesn’t meet the legal requirements for a statutory audit.
- You want to assess specific financial issues, like tax efficiency or internal controls.
- You are preparing for a major loan, merger, or acquisition and need to provide transparency.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
The Bottom Line
Ultimately, the choice between statutory audits vs non-statutory audits depends on your business’s size, needs, and legal obligations.
If you are legally required to have a statutory audit, make sure your financial records are in order. If you are not legally required, a non-statutory audit can still offer valuable insights into your business’s financial health.
How Accotax Can Help?
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Reach out, get an instant quote and let us help you stay compliant.
Disclaimer: All the information provided in this article on “Statutory Audits vs Non-Statutory Audits: What’s the Difference?” including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.