Are you preparing subsidiary or dormant subsidiary accounts with financial years ending on or after 1st October 2012? If so, you might want to look at statutory instrument 2012/2301 relating to audit and filing exemptions in the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012.
You can view a full copy of the instrument here. In this article, we’ll try to simplify this by summarising the key aspects affecting subsidiaries and dormant subsidiaries and the conditions that need to be satisfied for the exemptions to be allowed.
Qualifying subsidiaries and the exemption from audit
First, for a subsidiary to be exempt from audit it should not, at any time during the financial year in question be a quoted company, an authorised insurance company or a company carrying on insurance market activity, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company. Neither can it be a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c 52)(9) or an employers’ association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (SI 1992/807) (NI 5).
If you are happy that you are not any of the above, then read on…
Conditions that need to be satisfied for an audit exemption
The following criteria must all be satisfied to ensure you can claim audit exemption from the requirement to audit the individual company accounts of a subsidiary for this financial year:
(1) The company must:
- itself be a subsidiary undertaking, and
- have a parent undertaking established under the law of an EEA State (the European Economic Area comprises the countries of the European Union plus Iceland, Liechtenstein and Norway).
(2) Each of the following conditions must be complied with:
- all members/shareholders of the company must agree to dispense with an audit in the financial year in question;
- the parent undertaking must give a statutory guarantee on all year end liabilities in respect of that year;
- the company must be included in the consolidated accounts drawn up for that year or to an earlier date in that year by the parent undertaking in accordance with—
(i) the provisions of the Seventh Directive (83/349/EEC)(8); or
(ii) international accounting standards;
- the parent undertaking must disclose in the notes of the consolidated accounts that the company is exempt from the requirement to audit the individual accounts; and
- before the accounts for the individual company are filed, the directors of the company must file the following documents with Companies House:
- A written notice where all shareholders / members unanimously agree to dispense with the audit for that year;
- The statement (Companies House form AA06) whereby the parent company guarantees all liabilities held at the year end; and
- A copy of the parent undertaking’s consolidated accounts including a copy of the auditor’s report and the annual report on those accounts.
Sending the Statement of Guarantee (form AA06) to Companies House
The statement of guarantee has to be filed with Companies House on form AA06. Otherwise called the ‘Statement of guarantee by a parent undertaking of a subsidiary company’, the AA06 form must include:
- the name of the parent undertaking, if it is incorporated in the UK, its registered number;
- if the parent undertaking is incorporated outside the United Kingdom, the identity of the register on which it is registered and the number with which it is so registered;
- the name and registered number of the subsidiary company in respect of which the guarantee is being given;
- the date of the statement; and
- the financial year to which the guarantee relates.
When this guarantee has been filed with Companies House, it can then be enforced against the parent company, by any person to whom the subsidiary company is liable to at the year end, and until the liability has been settled in full.
Impact of the audit exemptions on the Confirmation Statement for subsidiaries
The directors are still responsible for filing a confirmation statement (formerly the annual return) using form CS01 with Companies House every year regardless of whether or not they have claimed the audit exemption. If you have any questions, take a look at our guide to the confirmation statement.
In another article, we look at dormant subsidiary companies. Check it out if you do have a dormant subsidiary as there could be further exemptions you could obtain and make life easier at those rushed year ends!