If you’re a trustee, you need to know if your charity meets the audit threshold for charities in England and Wales.
It is your responsibility to comply with the Charity Commission E&W audit requirements. Depending on your charity’s annual income and gross assets, this may mean arranging either a full charity audit or an independent examination of your charity accounts.
In this article, we’ll cover the charity audit threshold you need to know, including the difference between independent examination and audit, and other scenarios when a charity audit is required.
Charity Audit Threshold
The charity audit threshold is a key part of charity law, determining whether a charity must have a full audit or can opt for an independent examination of charity accounts. In the UK, the Charity Commission sets these thresholds, and trustees must be aware of them to ensure compliance and provide independent assurance to stakeholders.
Currently, the charity audit threshold is set at £1 million gross annual income or £3.26 million gross assets. If a charity meets either of these conditions, it must arrange for a full external audit. This involves a comprehensive review of the charity’s financial records to confirm that the accounts are properly accounted for and prepared in accordance with accounting principles and accounting standards.
For charities with annual income between £25,000 and £1 million, a full audit is not mandatory. Instead, they may require an independent examination, which is a less onerous process than an audit but still provides a competent examination and some level of independent scrutiny to confirm that the underlying records are correct and the accounts are accurate and up to date.
Knowing these limits is essential for trustees to meet their legal duties, demonstrate sufficient financial awareness, and maintain the trust of donors, beneficiaries, and regulators.
In Summary
Your charity will need to have a statutory audit if it meets either of the following:
- It has an annual income of more than £1 million.
- It has gross assets over £3.26 million and income over £250,000.
However, the only exception is where the Charity Commission approves an independent examination of a particular year’s accounts instead of an audit, which is rare and subject to strict criteria.
Independent Examination Limit
Charities with annual income between £25,000 and £1 million generally do not need a full audit but will require an independent examination by an independent examiner or charity auditor. This independent examination charity audit provides a lighter-touch review and is often more affordable.
Do You Meet the Charity Audit Threshold?
Determining whether your charity meets the audit threshold is crucial for preparing and scrutinising your charity accounts correctly. Trustees must also consider any additional external scrutiny requirements, such as those applicable to parochial church councils or specific provisions in the charity’s governing document.
The statutory limits and guidance for company and non-company charities are set out in the Charity Commission guidance and relevant charity commission annual return instructions.
Difference Between Independent Examination and Audit
Under charity law, trustees of registered charities must prepare annual reports and accounts in line with charity commission e w audit requirements. Charitable companies must also comply with company law requirements, including mandatory adoption of Statements of Recommended Practice (SORP) and adherence to accounting principles.
Independent Examinations
An independent examiner or charity auditor conducts a competent examination of the accounts to check that they are consistent with the underlying records and properly prepared. Independent examination assumes that the charity’s accounting records are accurate and complete. This process provides independent assurance but is less detailed than a full audit, making it quicker, cheaper, and less disruptive.
Charity Audits
A full charity audit is a thorough inspection of the charity’s financial records and accounts. The auditor provides an independent examiner’s report expressing an opinion on whether the accounts present a true and fair view of the charity’s financial position and comply with accounting standards and legislation.
The audit offers a higher level of independent scrutiny and may include recommendations to improve financial controls and governance.
If You Do Not Meet the Threshold
Generally, charities with annual income of £25,000 or less do not need to arrange an audit or independent examination. However, there may be additional external scrutiny requirements or conditions in the governing document or imposed by funders that require an audit regardless of income.
Trustees must always maintain proper accounting records and ensure that accounts are available on request.
Charity Accounts and Reporting
Charity accounts and reporting are fundamental to good governance, providing transparency about how the charity raises and spends its money. All charities must keep proper accounting records and prepare accounts in line with the relevant accounting standards and charity commission guidance.
Registered charities must also produce an annual report alongside their accounts. This report should provide a clear overview of the charity’s activities, achievements, challenges, and future plans. It is a vital document for accountability and building trust with donors, beneficiaries, and regulators.
For charities preparing accruals accounts, compliance with the relevant Statement of Recommended Practice (SORP) is mandatory. This ensures consistency and provides a true and fair view of the charity’s financial position.
By adhering to these reporting requirements, charities demonstrate their commitment to transparency, good governance, and financial responsibility.
Voluntary Audits
Some charities opt for a voluntary audit even if they do not meet the statutory audit threshold. The Charities Act 2011 outlines the legal requirements for charity audits, independent examinations, and annual reports.
A voluntary audit may provide several benefits:
- Reassure stakeholders by providing an independent opinion on the charity’s finances.
- Help prevent fraud through increased transparency and scrutiny.
- Assist trustees in making better financial decisions with detailed insights.
- Enhance the charity’s reputation, making it easier to attract funding.
- Identify areas for improvement in financial processes, potentially saving time and money.
Charity Audit Exemption
Charity audit exemption applies to charities with an annual income of £25,000 or less, who are generally not required to have a full audit or independent examination.
Nonetheless, exempt charities must still keep proper accounting records and prepare accounts which must be available on request. The Charity Commission provides guidance on audit exemption and trustees should consult this to understand their specific obligations.
Even exempt charities may choose to have a voluntary audit to provide additional assurance and improve financial management.
Finding an Auditor or Independent Examiner
Selecting a suitable auditor or independent examiner is crucial. Trustees should look for finance professionals with the requisite ability, experience, and independence to carry out a competent examination or audit.
Local recommendations, professional accountancy bodies listed by the Charity Commission, and directories of finance professionals specialising in the charity sector can be valuable resources.
Regularly reviewing your choice of auditor or independent examiner and shopping around ensures that you receive quality service and value for money.
As experienced charity sector accountants, we can help you navigate the charity audit requirements including commission independent examination charity guidelines and provide expert audit services tailored to your organisation.
Get in touch with us today to find out more about our charity audit and independent examination services.
