The thresholds, and the moment they bite

Novaform, a simplified joint-stock company, closes a year on €11,200,000 of revenue, €4,600,000 of balance sheet and 42 employees. Its director believes she must appoint a statutory auditor at once. She need not, neither this year nor the next. Before reading on: why, on those three figures?

Three thresholds, two to cross

The obligation does not turn on a single figure. It is triggered where a company exceeds, at the close of a financial year, two of the three thresholds set: total balance sheet, revenue excluding tax, and the average number of employees over the year.

The two-out-of-three rule is not a drafting convenience. It stops a single indicator, unusual in one year, from triggering a costly obligation: a capital-heavy company with a large balance sheet but modest revenue is not caught on that ground alone.

How the three measures are taken

The first two thresholds are read off the closed year's accounts: total balance sheet and revenue excluding tax. The third is not headcount at the closing date but the average number of employees over the year, which changes the answer for a seasonal business.

That difference of method explains many surprises. A company hiring heavily late in the year stays below the threshold on an annual average; another that employed many people in the spring may cross it although its closing headcount is modest.

Tracking is therefore prepared ahead of the closing, not after it. A director who discovers the crossing while reading the tax return package has already lost the room for manoeuvre that the one-year lag was meant to provide.

The obligation does not bite in the year of crossing

Even where two thresholds are exceeded, the company need not appoint an auditor during that year. The obligation takes effect from the following year, which leaves time to choose a professional and have the general meeting appoint them.

Leaving the obligation follows a cautious symmetry. A company ceases to be bound where it has not exceeded two of the three thresholds during the two years preceding the expiry of the current mandate. The mandate therefore runs to its term; it is not cut short.

Controlled subsidiaries, at reduced thresholds

A company controlled by another falls under thresholds halved — €2,500,000 of balance sheet, €5,000,000 of revenue, 25 employees — on one condition: the parent is itself required to appoint an auditor, because the group it forms with its subsidiaries exceeds the general thresholds. Same two-out-of-three rule.

Other legal forms have scales of their own. Civil law companies carrying on an economic activity fall under €1,550,000, €3,100,000 and 50 employees. Private training bodies see theirs drop to €230,000, €153,000 and 3 employees.

Article L227-9-1 of the Commercial Code organises that request for simplified joint-stock companies: the shareholders' request must be reasoned, and it opens a mandate of three years instead of the ordinary six.

• Read the total balance sheet and revenue excluding tax off the closed year's accounts.
• Compute the average number of employees over the year, not headcount at the closing date.
• Count how many thresholds are crossed: two are enough, one triggers nothing.
• Check whether the company is controlled by a parent that is itself required to appoint an auditor: only then do the thresholds halve.
• Repeat the whole check at every closing, since a single good year can cross a second threshold.

Growth is what makes the check worth repeating each year. A company hiring, investing and billing more will cross a second threshold at some point, and the year it does so is the year the clock starts — not the year someone notices.

Where the accounts are kept by an outside firm, the check is naturally theirs to raise. It is worth asking for it explicitly rather than assuming it: an engagement letter for bookkeeping does not necessarily include watching thresholds on the client's behalf.

What the omission costs

Failing to appoint an auditor where the law requires one is not an administrative slip. The failure carries two years' imprisonment and a fine of €30,000, a severity that says plainly enough that the audit is not optional once the thresholds are crossed.