Statutory provisions determine when an audit must be carried out on the annual accounts of a company. The three criteria of balance sheet total, revenue and average number of employees play a decisive role during the year. If two of the three criteria mentioned above exceed the thresholds for this purpose in at least two consecutive years, an auditor must check the trade balance. Thus, the audit leads to additional costs which depend on the expense of the auditor employed. But there are ways that help avoid an audit. In this way, an audit can be avoided by restructuring the company. One can, for example, influence the number of employees by transferring them to an independent service provider for temporary employment. Another method to avoid auditing is to split up the company. This reduces the balance sheet total or the revenue.

The audit is a requirement introduced by the legislature to ensure that the presentation of the economic situation of companies is accurate. Finally, the published data on the financial position and financial performance of a company represent important information in which one may have a legitimate interest for various reasons. For example, trade balances serve as a basis for granting loans or determining a purchase price for a company. This information is also of great interest to potential investors. However, the audit can also serve the purpose of identifying an emerging insolvency at an early stage. And even then, clever manipulation can break the protective effect of auditing, as the Wirecard case recently showed.

However, the legislature only sees a need for auditing for companies above a certain size. Thus, he has also enacted corresponding laws that avoid auditing small companies.

Now there may be good reasons why an audit makes sense. Similarly, a restriction on the obligation to carry out an audit may also make sense. Especially if you only have to carry the obligation to audit because you are just above the limits, the desire to avoid auditing is all too obvious. Because an audit always leads to costs that reduce the profit. The costs depend on the effort that an auditor has with an audit. For example, the auditing of a company that only buys and sells luxury yachts should be much simpler, and therefore also cheaper, than if a production company were to be audited.

However, there may be other reasons that make it necessary to avoid an audit. Especially in cases where it is a temporary activity, so that after a few years no further economic activity is planned anyway, one can understand the intention to avoid the audit.

However, it can also be relevant for companies with questionable transactions to avoid an audit. This is because auditing represents a potential risk that you would like to avoid. While we wish to hope that none of our readers will take the information provided here as an invitation in this regard to avoid an audit. However, it is equally unrealistic to think that one could significantly reduce the potential for such an application by refraining from doing so.

Before considering how to avoid an audit, you should know when the obligation to do so arises. Incidentally, the legal basis for the audit obligation exists according to § 316 HGB.

In this context, we would like to point out that we only refer to aspects in which a medium-sized company defined in accordance with § 267 HGB achieves the mandatory maturity for auditing, but wants to avoid it. Other situations in which an audit or even a group audit could be available, we therefore exclude from our considerations.

An audit is usually provided for when a corporation reaches the size of a medium-sized corporation in two consecutive financial statements. This is the case if both financial statements meet at least two out of three criteria.

One criterion to consider if you want to avoid an audit is the size of the balance sheet total. If this is more than EUR 6,000,000, then at least one of the possible indicators for an auditing obligation is given.

The next criterion that may be relevant is the level of revenue in the previous twelve months. If this amount is higher than EUR 12,000,000, then it would be good to avoid auditing if the other two criteria were not met.

The third criterion is about a parameter that has no direct relation to the annual accounts. Rather, the number of employees engaged in the company is in the foreground. Both domestic and foreign workers are relevant, with the exception of apprentices. This includes the number of employees at the end of each of the four previous calendar quarters. The sum is then divided by four to determine the annual average employees.

In order to avoid a potential audit, various measures can be taken so that at most one of the criteria is met. However, this is obviously always dependent on the respective situation in the company. Nevertheless, we would like to discuss three possible design variants with which it is possible to avoid an audit. We assume that only two of the three potential criteria are met. As soon as all three criteria are met, the effort to avoid an audit hardly makes sense.

With the first approach, which we present to you here, we would like to influence the amount of the balance sheet. If we have a company that can be split into two companies, so that the balance sheet total in both is well below EUR 6,000,000, then at least on this point we avoid the creation of the auditing obligation. However, a division is only possible in a tax-neutral manner if at least two sub-operations are separated from one another.

However, this also works with a spin-off. For example, one could bring the operational business operation into a subsidiary. However, this in no way reduces the balance sheet total of the parent company. For a tax-neutral conversion at book value, the participation in the subsidiary has the same value as the transferred assets. However, the subsidiary assumes both the balance sheet total and the revenue.

However, an audit by means of a spin-off can be avoided if only part of the parent company is transferred to the subsidiary. However, you have to make sure that you either transfer a branch of business or that the subsidiary is a partnership instead of a corporation. Otherwise, a tax-neutral conversion is excluded.

In addition, you have to pay attention to whether parent companies and subsidiaries may have to prepare a group report as a result. This can also be subject to inspection. Therefore, a hive-off can only be considered in order to avoid an audit if two fulfilled criteria are divided between parent and subsidiary companies.

In both variants, in which a company conversion plays a role, the retroactive effect option may also be relevant. In addition, it must be borne in mind that the conversion processes bring about a blocking period.

Similar to the other two variants, the third also comes with a separation. Here we try to influence the number of employees. For this purpose, we set up an independent company for temporary employment, in which the original employees are now employed. This service company then leaves the employees as temporary workers to the original company that wants to avoid auditing. In fact, it is possible to prevent the number of employees criterion from being the determining factor in the auditing obligation.

Of course, it must not be an end in itself if you want to avoid an audit. Finally, all the related measures also involve costs. Therefore, there must be really good reasons to avoid an audit. In addition, it is worth considering whether the measures taken to avoid auditing may lose their effect within a few years, because, for example, there is a steady increase in employees and revenues. For this reason, we also assume that in the vast majority of cases it makes only limited sense to want to avoid an audit.