Audit exemption – What Is It? and 3 Types of Exception

There are various accounting and auditing bodies in the world. And each body has recommended lawmakers to exempt certain companies from audit exemptions or provide some amount of relief or relaxations in complying with the applications of mandatory audit i.e. statutory audit.

However, the basic theme remains the same for audit exemptions in all these countries having accounting and audit bodies based on their definition. The basic objective of audit exemption is generally given to small companies and non-group companies.

The exemptions can be full exemptions from compliance or with certain relaxations. Further, there is a set of excluded companies from audits like Non-government organizations.

There are various logical reasons to exempt certain entities from the audit. We will look briefly onto them as follows:

1) Small companies

These are small companies having lower revenues as compared to bigger fishes in the market. Small companies or entities preferably have lower profits and lower revenues built on the lower base of capital. Compliance with auditing regulations requires the hiring experts and this will be a higher cost.

The small companies have a lower number of employees and ownership structure is generally proprietorship. Hence, it’s better to exempt these companies from auditing.

These companies pay their taxes on a self-evaluation basis. Inland revenue services randomly pick single digit of these taxpayers for random checking and the quick audit is done of the taxpayers.

Regarding financial audits, these are required in order to get loans or credit from banks or financial institutions. Otherwise, small companies are as good as complied with.

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2) Non-group companies

A company has various group companies where the inter holdings or large stake by the promoters himself defines if the company is a group or not.

A group company is a large company with millions of revenues spread over the various vertical businesses.

The issue here is whether the company where group company has miniscule investment or relations shall be called group company.

The group companies are generally dealing with banks and paying taxes regularly. The non-group companies do not want audit compliance as it would get costly.

Various countries have self-declaration where the directors self-attest that they are not part of any group companies and they would be then subject to audit exemption.

3) Not for profit organizations and NGOs

Certain NGOs have immunity as they operate from other countries. Like the Compact mission of United states before entering into an agreement with any other nation demands in their agreement that they would not be subject to any audit regulations and they would not be subject to any taxes in the countries where they try to operate.

Another set of entities are not for profit organizations.

They are granted audit exemptions up to certain revenues or donations which varies from country to country.

The principle here is that they are not involved in profit-making business but are in the social causes. This helps them to complete audit exemptions.

From above it is clear that audit exemption is for those organizations to help them grow and let them involve in their social causes without the hackles of the audit.

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Written by dadarkpassenger