Why a first audit happens
Most first audits follow growth. A company that goes over two of the three size limits (£15 million turnover, £7.5 million balance sheet total, 50 employees) in two consecutive years needs an audit from the second of those years. Others start when a company joins a group that is over the limits, when an investor or lender requires audited accounts, or when shareholders holding 10% ask for one. The audit checker works through each of these.
When your accountant can't do the audit
Only a firm registered with one of the recognised supervisory bodies (the ICAEW, ICAS, ACCA or Chartered Accountants Ireland) can carry out a statutory audit. Your accountant may not be one of them: only 3,421 firms in the UK and Ireland were registered to audit in 2025.
You can check any firm on the public Register of Statutory Auditors. If yours isn't on it, there are two usual routes. Your accountant keeps the bookkeeping, accounts and tax, and a separate audit firm audits the accounts. Or you move everything to one registered firm. The first keeps the relationship you have. The second means one firm and one set of fees.
The auditor has to be independent of the people preparing the accounts, so working alongside your existing accountant is normal, and most audit firms are used to it.
Want to talk it through? Tell us about the company and speak to the audit team. The budget and timetable are agreed before any work starts.
Talk to usWhen to appoint the auditor
Appoint the auditor before the year end of the first audited year. Two things depend on it.
The first is the stock count. Where stock is material, the auditing standards expect the auditor to attend the physical count at the year end. An auditor appointed afterwards has to find other evidence that the stock existed and that the count was accurate. That evidence is sometimes unavailable.
The second is planning. An auditor who knows the business before the year end can agree what records are needed, test some controls during the year and raise accounting questions while there is still time to deal with them.
For a private company, the accounts have to reach Companies House within nine months of the year end. A first audit planned in the last few weeks before that deadline puts the filing at risk.
Opening balances
The figures at the start of the first audited year were never audited, and they flow straight into this year's results. Stock at the start of the year is part of cost of sales. Debtors and creditors carried forward affect revenue and costs. So the auditor has to get evidence that the opening balances are right, under the standard known as ISA (UK) 510.
That evidence usually comes from what happened after the previous year end: cash received from opening debtors, payments to opening creditors, stock sold, and bank and loan statements. Where there is no reliable record of the opening stock and the amounts are material, the auditor may have to qualify the opinion on the results for the year.
If you expect an audit next year, count stock carefully at this year end and keep the count sheets. A well-documented count gives the auditor the evidence it needs for the opening position.
What the auditor looks at
An audit is planned around risk. The auditor identifies the areas where the accounts could be materially wrong and concentrates the work there. In most trading companies that means:
- revenue, and whether sales are recorded in the right period
- stock quantities and valuation
- debtors and whether they will be collected
- cash and bank balances, confirmed with the banks
- payroll and directors' remuneration
- loans, finance agreements and covenants
- transactions with directors, shareholders and related companies
- whether the business can continue as a going concern for at least twelve months
The auditor also reads the board minutes and the main contracts, and asks the directors for a letter of representation at the end of the audit.
What to prepare
An audit partner's information request at the start of a first audit typically covers these records. Having them ready shortens fieldwork.
- Final trial balance and nominal ledger
- Bank reconciliations for every account
- Fixed asset register
- Stock count sheets and valuation
- Aged debtor and creditor listings
- Accruals and prepayments schedules
- Payroll reports and P32 summaries
- VAT returns for the year
- Loan and finance agreements
- Board minutes
- Significant sales and supply contracts
- Last year's accounts and tax computation
Choosing a firm for a first audit
Ask who will lead the audit and how often you will see them, how the firm handled first-year opening balances for similar businesses, what it needs from you before the year end, and how it will tell you about problems found during the audit. Ask for a timetable that ends well before the filing deadline.
A well-run first audit has a recognisable shape: an information request issued well before fieldwork, a planning meeting with the finance team, early warning of issues as they arise, close-down meetings with the finance team and the directors, and a written note of improvements for the following year. Ask each firm whether it works that way.
Questions
How long does a first audit take?
It depends on the size of the business, the state of the records and how much evidence exists for the opening balances. The audit partner will give you a timetable at the planning stage. Allow more time than for later years, and start the planning before the year end.
What does a first audit cost?
The fee depends on the scope: the number of companies, the reporting framework, stock, the number of sites and the quality of the records. The audit partner gives a written proposal once they understand the work. A first year usually costs more than the years after it because of the opening balance work.
Can our current accountant do the audit?
Only if the firm is registered to carry out audit work and the ethical rules on independence allow it. You can check any firm on the public audit register at auditregister.org.uk. A firm that prepares your accounts and does your tax can sometimes also audit them, with safeguards in place.