Q&As

What are the implications for a company's directors who have wrongly relied on an audit exemption and filed unaudited accounts?

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Published on LexisPSL on 22/12/2014

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • What are the implications for a company's directors who have wrongly relied on an audit exemption and filed unaudited accounts?
  • Approving and signing non-compliant accounts
  • Failing to circulate a complete copy of its annual accounts and reports
  • Approving non-compliant directors’ report

Companies are required to file audited accounts and reports with Companies House unless an exemption applies (such as the small company, subsidiary company or dormant company exemption). Chapter 1, Part 16 of the Companies Act 2006 (CA 2006) sets out the requirement (and exemptions from the requirement) for audited accounts. See Practice Note: requirement to audit accounts which summarises the statutory provisions relating to the requirement to audit the company’s annual accounts in accordance with the CA 2006 and other legislation.

Assuming that the directors of a company relied on an exemption at the time of signing off the accounts (ie, included an audit exemption statement on the company’s balance sheet) and external accountants did not prepare the accounts in question, the directors of the company may be liable to a fine under different provisions of the CA 2006 in relation to incorrectly relying on an audit exemption. However, some of the offences require knowledge or recklessness, whereas others are strict liability offences.

In addition, the directors may have breached their general duty to exercise reasonable care, skill and diligence (CA 2006, s 174). See Practice Note: Directors' duties—a quick guide for further details (which also discusses the

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