Glossary

Audit Exemptions for Subsidiary Companies

Clifford McDowell

A subsidiary may claim exemption from audit if its parent is established under the law of an EEA state, in certain circumstances. To take up these exemption’s companies would need to deliver, before the date on which the accounts are due, the following documents to the Registrar:

  • a written notice that all members of the subsidiary company agree to the exemption in respect of the relevant financial year
  • a statement from the parent undertaking that it guarantees the subsidiary under section 479C of the Companies Act 2006 in respect of the relevant financial year
  • a copy of the parent undertaking’s consolidated accounts including a copy of the auditor’s report and the annual report on those accounts

Please note:

  • a subsidiary must be included in the parent’s consolidated accounts for the relevant financial year or to an earlier date in the same financial year. The parent undertaking must disclose in the notes to their consolidated accounts that the subsidiary is exempt from the requirements of this Act relating to the audit of accounts under section 479A of the Companies Act 2006
  • the agreement and the parent’s consolidated accounts must show the subsidiary company’s name and registered number in a prominent place on the document
  • the exemption will only be available if the company’s financial year ends on or after 1 October 2012

Entities that cannot claim exemption from audit as a subsidiary

A subsidiary is not entitled to the exemption if it was at any time within the relevant financial year:

  • a quoted company
  • a company that:
    • is an authorised insurance company, a banking company, an e-Money issuer, a MiFID investment firm or a UCITS management company
    • carries on insurance market activity
    • a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c 52) or an employers’ association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland Order 1992 (S.I. 1992/807 (NI 5).

Information that must be included in the form AA06

The statement must include the following information:

  • the registered name and number of the subsidiary
  • the subsidiary’s financial year to which the guarantee relates
  • the statement date
  • details of the section of the Companies Act 2006 under which the guarantee is being given:
  • Either:
    • if the parent was incorporated in the UK its registered name and registered number (if any)
    • if the parent was incorporated and registered (in the same country) elsewhere in the EEA, its registered name, registration number and the identity of the register where it is registered.

Effect of the guarantee and when it takes effect

The guarantee has the effect that the parent undertaking guarantees all outstanding liabilities that the subsidiary is subject to at the end of the financial year. The guarantee takes effect when it is delivered to the registrar and remains in force until all of the liabilities have been satisfied.

Requirements that a small company must comply with to claim audit exemption

The subsidiary company must include statements on the balance sheet of its individual accounts to the effect that:

  • For the year ending (dd/mm/yyyy) the company was entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies.
  • The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476
  • The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts
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