Which entities are eligible to be exempt from an audit?

• A. Small companies and dormant companies.
• B. Publicly listed companies.
• C. Banks and insurance companies.
• D. Non-profit organizations only.

Answer: (A)

Entities that are very small or inactive can be exempt from an audit because the risk of material misstatement affecting users is low and the cost of auditing would outweigh the benefit. Regulators often allow such exemptions when a company stays below set thresholds (like turnover, assets, and employees) or is dormant (no significant accounting activity). This contrasts with more scrutinized entities: publicly listed companies typically require audits due to investor interests, banks and insurance companies are highly regulated and usually must be audited, and non-profit organizations may or may not be exempt depending on the jurisdiction and size. So, small companies and dormant companies are the ones eligible for audit exemption.