In essence, an audit is an effective way to review a company's financial information while ensuring compliance with accounting standards. But much more than this, an audit gives clarity, informs future planning and gives peace of mind to potential investors.

In this section we cover when your business qualifies for a statutory audit, what challenges you may face and how we can help you face these. We will also touch on grant reporting needs and any wider financial reporting support you may need as your business grows in complexity.

Statutory audit – what is it and when does it apply

Small companies are exempt from statutory audit until they breach the small company thresholds set out in the Companies Act 2006. When the thresholds are breached for two consecutive periods a company is no longer considered small or entitled to the small company exemptions. The thresholds are as follows:

  • Annual turnover £10.2m
  • Balance sheet total (gross assets) £5.1m
  • Average employees 50

A company needs to breach any two of the above thresholds to qualify for a statutory audit.

Tech start-ups don’t usually need an audit, however, it’s not uncommon for investors to require a company to have its financial statements audited, particularly from Series A.

Our team carries out audits for clients across the technology sector - from start-ups through to large multinational groups. Our first-hand experience of the financial reporting challenges faced by Tech companies means we can give you the valuable insight you need to form policies, judgements and ensure best practice.

Financial reporting matters facing Tech businesses

As your business grows, so does the complexity. From our experience of working with a range of businesses in the Tech sector, we know the most commonly faced challenges and our Audit and Financial Reporting Advisory teams are on hand to help: 

Revenue recognition

Accounting for different revenue streams can often be complex and/or judgmental and for growing tech businesses market strategy can change quickly: this can often mean that accounting policies around the timing of revenue recognition need to evolve with it. Our audit and FRA teams understand how to look behind the accounting standards in order apply them to specific circumstances or contractual arrangements prevalent in the sector, how to innovate an audit in this area, and to provide guidance to clients seeking to get it right and plan ahead without surprises.

Share based payments

Many start-up and scale-up tech businesses will use share options as a tool to attract, incentivize, and retain key personnel. The terms of such options will be specific to the company/group and can potentially lead to wide ranging outcomes from an accounting perspective. Both our Audit and our FRA teams have seen many schemes in practice so can provide the tools to determine the accounting in future periods.

Accounting for research & development expenditure

An area involving judgement and estimation as well as a possible choice in accounting policy. We can clarify this for clients meaning informed choices can be made, and our experience can provide recommendations with regard to best practice in monitoring and recording expenditure, and /or applying judgement in determining appropriate useful lives to any capitalised costs.

We can also advise on the tax considerations in relation to claims for R&D tax relief.

Accounting for compound financial instruments, such as convertible debt

There may be complexity and estimation in determining the fair value-based accounting for such financial instruments. Our knowledgeable team can review details of such arrangements and advise management as to the accounting entries are determined.

Accounting for government grants

UK GAAP may offer a choice in accounting policy for government grants: we can advise on these options, as well as draw on experience in auditing the resultant accounting treatment.

Our Audit and Assurance team, led by Graham Marjoribanks, provide expert advice to hundreds of businesses, helping them meet the UK’s regulatory requirements.

Grant reporting

Our team also has significant experience of reporting as Auditors and Independent Accountants in accordance with grant award requirements. We’re familiar with the common specific requirements of several awarding bodies, including Scottish Enterprise, Innovate UK and BEIS, and we draw on this experience to ensure the information required to support the claim is prepared correctly and the grant submissions are compliant with grant conditions.

Financial Reporting Advisory

Our dedicated Financial Reporting Advisory (FRA) team work with clients to support and advise on complex areas within financial reporting. Examples of the areas we work with our Tech clients on include:

  • Advising on specific technical accounting matters
  • Impact assessment in comparing UK GAAP (FRS 102) with IFRS
  • Full GAAP transition to IFRS
  • Preparation of financial statements under FRS 102, FRS 101 and IFRS that will be subject to audit
  • Preparation of IFRS compliant Historic Financial Information in support of public listing
  • Group consolidation preparation and model building.

If you have a question about your financial reporting or auditing requirements, at any stage of your journey, please get in touch with a member of our Tech Team now. We’re here to listen, analyse and advise.