In most countries it is possible for businesses to be operated through companies – a process known as incorporation.
Audit exemption: In most countries, companies generally require an audit. However, small or owner managed companies are often exempt (e.g. in UK, companies with annual turnover < £5.6 million).
The main reasons for exempting small companies are:
• for owner managed companies, those receiving the audit report are those running the company (and hence preparing the accounts!)
• the advice/value which accountants can add to a small company is more likely to concern other services, such as accounting and tax, rather than audit and which may also give rise to a conflict of interest
under the ethics rules
• the impact of misstatements in the accounts of small companies is unlikely to be material to the wider economy
• given the above points, the audit fee and related disruption are seen as too great a cost for any benefits the audit might bring.