Statutory Audit Preparation: A Step-by-Step Guide for UK Businesses

Statutory audit preparation in the UK involves organising financial records, reconciling accounts, documenting internal controls, and preparing evidence before auditors arrive

In this guide, we will cover in detail statutory audit preparation for the current financial year.

You will get to know:

• What is a statutory audit
• Who qualifies for a statutory audit
• Steps for a statutory audit preparation
• And much more…

Let’s get into it!

What Is a Statutory Audit?

A statutory audit is a legally mandated, independent examination of an organisation’s financial records and statements. The primary goal of a statutory audit is to prove that the company’s financial statements provide a “true and fair view” of its financial health. A statutory audit helps confirm that the company has prepared its financial statements in accordance with applicable legal and accounting requirements.

Do You Actually Need a Statutory Audit?

Before starting statutory audit preparation, you need to check if your business legally requires an audit.  The audit thresholds apply to private limited companies. Different rules may apply to public companies and certain regulated businesses.

Generally, a company may qualify for audit exemption if it meets at least two of the following criteria:

• Annual turnover of no more than £15 million
• Assets worth no more than £7.5 million
• 50 or fewer employees on average

So if your company exceeds two or more of these limits for two consecutive years, a statutory audit will become legally mandatory for you.

Who Always Needs an Audit Regardless of Size

There are some companies which cannot claim audit exemption, no matter how small they are:

• All public limited companies (PLCs)
• FCA-regulated firms, including banks, insurance companies and e-money issuers
• Subsidiaries of large groups (unless the parent provides a s479A guarantee)
• Companies whose articles of association require annual audits
• Companies where shareholders holding 10% or more of shares request one in writing before the financial year ends

If any of the above apply, statutory audit preparation is not at all optional.

Statutory Audit Preparation: Step-by-Step

Step 1: Plan the Audit Timeline

Never leave your statutory audit preparation until the month before your filing deadline.

You should contact your auditors months in advance to lock down the critical dates. You want to agree on:

1. The specific dates for the digital or on-site fieldwork.
2. The deadline for delivering your initial trial balance and draft statements.
3. The sign-off dates to meet your statutory filing obligations.

Also, do not forget to discuss any major business changes or new projects from the past year. This is to ensure that everyone is on the same page.

Step 2: Review the PBC Checklist

One of the most useful parts of statutory audit preparation is the PBC list. It is short for “prepared by client”.  PBC (Prepared By Client) is a document your auditors send listing everything they require before fieldwork begins. Auditors typically send this list immediately after the initial planning meeting or the signing of the engagement letter.

This is essentially a giant checklist of every file, report, and piece of transaction evidence the auditors want to see.

You should assign every item on that list to a specific person in your finance team with deadlines. This step is really important for statutory audit preparation.

Step 3: Ensure Bookkeeping Is Up to Date

The foundation of good statutory audit preparation is clean and up-to-date bookkeeping. Your auditor will need:

• A full trial balance as at the year-end
• Bank statements for all accounts (matching your books)
• Sales and purchase ledgers
• Aged debtors and creditors listings
• Payroll records, including PAYE submissions and P60s
• VAT returns and any HMRC correspondence

If your bookkeeping has gaps or errors, you must deal with them before the audit starts.

Step 4: Complete Your Bank and Ledger Reconciliations

A critical phase of your statutory audit preparation is matching your bank statements exactly to your general ledger balances.

You must reconcile every single bank account, credit card, and loan facility held by the business up to the very last day of the financial year.

Your accounts are only as strong as the reconciliations behind them.

Use this stage of your statutory audit preparation to also run your year-end accounting schedules. This also includes your fixed asset register, depreciation, prepayments, and accruals.

For example, if your bank statement shows £54,870 but your accounting software shows £54,620, you should identify and explain the £250 difference before the audit begins.

Step 5: Organise Your Records

For your statutory audit preparation, compile all official administrative and legal paperwork into a centralised digital folder.

Because auditors need supporting evidence.

Here is a practical list of what you should have ready:

Financial records:

• Signed board minutes from all meetings during the year
• Loan agreements and any borrowing documents
• Major contracts signed during the year
• Fixed asset register with additions, disposals, and depreciation
• Prepayments and accruals schedules
• Stock count records (if applicable)
• Details of any unusual transactions or one-off items

People and Payroll:

• Payroll journal summaries
• P11D and benefit-in-kind records
• Director loan account details and related party transactions

Tax:

• Corporation tax computation (or working draft)
• R&D tax credit claim details, if applicable
• Any HMRC notices or correspondence received during the year

The more organised the records are, of course, the fewer follow-up queries you will get.  Some firms even prepare a formal “audit pack”. This is basically a folder containing all the above in a logical order.

Step 6: Review Internal Controls

A key part of your statutory audit preparation is evaluating your internal financial workflows and safeguards.

Auditors will thoroughly test your controls in order to ensure fraud risks are minimised.

Before the fieldwork starts, you need to review your process maps. Make sure your team is actually following your written financial policies.

If you get these internal controls reviewed and polished during your statutory audit preparation, it will save you plenty of time. Because this preparation will prevent the auditors from finding weaknesses that might force them to double their sample testing.

Step 7: Brief Your Team

You need to brief your team before fieldwork starts.

Let them know the auditor is coming, what will be requested, and who is responsible for what.

Someone in your finance team should take ownership of the audit process. It can ideally be a finance lead who can respond to auditor queries promptly, must know where everything is, and can make decisions without involving the whole board every five minutes.

Time spent on this upfront saves much more time during the audit itself. All in all, you must know that auditors do not simply verify figures. They also assess whether the evidence supporting those figures is complete, reliable and complies with UK accounting standards.

Common Mistakes to Avoid During Statutory Audit Preparation

• Leaving reconciliations until fieldwork begins. Your auditor will wait for them. Consequently, it will delay your audit.
• Not keeping board minutes up to date. Minutes are a key source of evidence for significant decisions. If they have not been drafted for six months, you need to clear the backlog now.
• Forgetting related party disclosures. These are a regulatory requirement, not optional. If your director borrowed money from the company, it goes in the accounts.
• Changing auditors at the last minute. This is definitely disruptive for everyone. It also adds costs.
• Not telling your auditor about problems. If there is an issue, such as a legal claim or a tax enquiry, you need to tell your auditor early. Surprises during fieldwork are the main cause of delays.

Statutory Audit Preparation Checklist

Before your auditors arrive, ensure you have:

• Completed bank reconciliations
• Finalised bookkeeping
• Prepared draft financial statements
• Gathered supporting documents
• Reviewed payroll records
• Verified VAT balances
• Updated fixed asset register
• Prepared year-end schedules
• Reviewed internal controls
• Assigned an audit contact person

This simple checklist can prevent many common audit problems.

Wrapping Up: Statutory Audit Preparation

Statutory audit preparation does not need to be stressful.

Know your thresholds. Keep your records clean throughout the year. Brief your team and talk to your auditor early.

Businesses that prepare well not only pass audits smoothly but also gain credibility with stakeholders.

How Cheap Accountants in London Can Help

At Cheap Accountants in London, we look after businesses that want their finances sorted without the premium price tags.

Preparing for your first statutory audit? Our experienced accountants can help organise your records, prepare your financial statements, liaise with your auditors and ensure you’re fully prepared before fieldwork begins. Surely, we can handle all your accounting tasks, including your annual tax returns and refunds.

Our team also takes care of payroll and PAYE matters, VAT services, and complex queries directly with HMRC.