ICAEW publishes guidance on the audit exemption by parent guarantee

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28 Jun, 2013

The Institute of Chartered Accountants in England and Wales (ICAEW) has issued guidance on the exemption from audit under s479A-479C of the Companies Act 2006 for companies. The guidance addresses a number of common questions raised and provides some practical solutions.

For accounting periods ending on or after 1 October 2012, the Companies Act 2006 was amended to offer a new exemption from audit for subsidiaries with an EEA parent that is willing to guarantee all of the subsidiaries’ outstanding liabilities (until they are satisfied in full), provided that certain conditions are met.  The guarantee is enforceable against the parent by any person to whom the subsidiary is liable in respect of those liabilities and once given, the guarantee remains with the parent until all liabilities of the subsidiary included within the guarantee have been satisfied in full.  Dormant subsidiaries with such a guarantee are additionally exempt from preparing and filing financial statements. 

The guidance covers which companies are exempt from the requirements for an audit under s479A and also those that cannot make use of the audit exemption such as those that were quoted at any time during the financial year. 

The guidance addresses other questions such as: 

  • When does the new exemption become available?
  • What are the conditions for exemption?
  • What are the formalities for members agreeing to use the exemption?
  • What are the requirements in relation to the parent?
  • What are the requirements for filing the written notice of agreement?
  • How is the guarantee given?
  • What are the requirements for the statement referred to in s479C?
  • What is the effect of the guarantee?
  • What is the effect of a change in ownership of the company after a guarantee has been given? 

Subsidiary companies making use of the exemption should include a statement in their balance sheet disclosing that they are entitled to the exemption from audit under s479A of the Companies Act 2006.  Example wording is provided in the Companies House guidance booklet GP2 (link to Companies House website). 

The ICAEW note that the scope of the ‘outstanding liabilities’ covered by the guarantee is a matter of law.  It is currently unclear how far the law would enforce the repayment of all of the liabilities of the subsidiary on the parent.  Due to this uncertainty, the ICAEW highlight that it would be prudent for the parent to consider all of the liabilities of the subsidiary (including contingent and prospective liabilities) when weighing up the benefits of using the audit exemption against the cost of providing the guarantee. 

Click for:

ICAEW Technical Release (Tech07/13BL) (Link to ICAEW website)

Amendments to Companies Act 2006 (link to legislation)

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