If you’re a trustee you need to know if your charity meets the audit limit for charities.
It’s your responsibility to meet the Charity Commission’s requirements. Depending on your charity’s income and assets this may mean a full charity audit or an independent examination of your charity accounts.
In this article we’ll cover the charity audit limit you need to know and other scenarios where an audit is required.
Audit Limit
The audit limit for charities is a key part of charity law, it determines whether a charity needs a full audit or an independent examination of its accounts. In the UK the Charity Commission sets the limits and it’s up to the trustees to know them to ensure compliance.
Currently the audit limit for charities is £1 million gross income or £3.26 million gross assets. If a charity meets either of these conditions it must have a full external audit. This involves a full review of the charity’s financial records to ensure accuracy and compliance with accounting standards.
For charities with income between £25,000 and £1 million a full audit is not required. Instead they may need an independent examination. This is a less onerous process than a full audit but still provides some level of assurance that the accounts are accurate and up to date.
Knowing these limits is key for trustees to meet their legal requirements and keep the trust of their supporters.
In Summary
Your charity will need to have a statutory audit if it meets either of the following:
- it has an income of more than £1 million
- it has gross assets over £3.26 million and income over £250,000.
However in some cases the Charity Commission may only require an independent examination of your accounts instead of an audit.
Independent examination limit
Charities with income between £25,000 and £1m won’t need a full audit. But they may need an independent examination, which often involves charity auditors.
Do you meet the audit limit?
Working out if a charity meets the audit limit is key to preparing and scrutinising a charity’s accounts. The legal requirements in the charity’s governing document and the variations in scrutiny depending on the charity’s legal form and income band must be considered. The statutory limits and guidelines for company and non company charities are set out in the regulations.
What’s the difference between an audit and an independent examination?
Under charity law trustees of registered charities must prepare annual reports and accounts. Charitable companies must follow specific company law requirements when preparing accounts, including mandatory adoption of certain Statements of Recommended Practice (SORP) and limitations on accounting methods depending on their income levels. These documents tell stakeholders what the charity has done that year and how it raises and spends its money.
Independent examinations
The role of an independent examiner is to check these reports look correct. A charitable incorporated organisation (CIO) has specific requirements for keeping accounts and preparing reports that must be followed. But they assume your underlying financial records are accurate to start with.
As this is not as thorough as a full audit the process is generally quicker, cheaper and less disruptive.
Charity audits
Meanwhile a full charity audit is a full inspection of your charity’s financial records.
Your auditor will need to give an opinion on whether the organisation’s accounts are a “true and fair” reflection of its finances. They’ll also confirm whether your financial statements are in line with accounting standards and legislation.
The purpose of an audit is to provide more assurance the accounts are accurate. Some audit services also include deeper analysis of your financial statements and practical advice on managing funds.
If you don’t meet the limit
Generally you don’t need to have an audit or independent examination if your charity’s income is less than £25,000 a year.
But you may need an audit for other reasons. For example to meet requirements in the charity’s governing document or conditions imposed by the founder.
You must keep accurate up to date financial records for your charity whatever the income.
Charity Accounts and Reporting
Charity accounts and reporting are core to charity governance, telling stakeholders what the charity has done, how it has done it and how it has spent its money. All charities must keep proper accounting records and prepare accounts which must be available on request.
Registered charities have extra requirements, including an annual report to accompany their accounts. This report should be a brief but full review of what the charity has done in the last year, what it has achieved, what the challenges were and what it plans to do. It’s a key document for transparency and accountability to build trust with donors, beneficiaries and regulators.
For charities preparing accruals accounts you must follow the accounting requirements in the relevant Statement of Recommended Practice (SORP). This ensures the financial statements are prepared consistently and in line with best practice and give a true and fair view of the charity’s financial position.
By following these reporting requirements charities can show they are committed to good governance and financial transparency.
Voluntary audits
Many charities choose to have an audit even if they don’t meet the £1m limit. The Charities Act 2011 sets out the legal requirements for charity audits, independent examinations and annual reports.
An independent auditor can give you expert knowledge of your charity’s finances which can be particularly useful if you are a smaller charity without a dedicated finance team.
Having a voluntary audit may help you:
- Reassure stakeholders — an external audit will reassure trustees and stakeholders your charity’s finances are in order.
- Prevent fraud — more transparency will prevent fraud in the charity.
- Make better financial decisions — a deeper understanding of your charity’s finances will help you make better financial decisions.
- Improve reputation — audited financial statements will improve your charity’s reputation making it easier to get funding.
- Refine financial processes — auditors will highlight areas for improvement in your charity which may save you time and money in the long run.
Charity Audit Exemption
Charity audit exemption is a key part of charity law, deciding whether a charity is exempt from having a full audit or independent examination. In the UK charities with a gross income of less than £25,000 are generally exempt from these requirements.
But even if a charity is exempt from the audit requirement it may still choose to have a voluntary audit. This will give extra assurance on the financial statements, reassurance for the trustees and stakeholders. A voluntary audit will also highlight areas for improvement in financial management and processes.
Regardless of exemption status all charities must keep proper accounting records and prepare accounts which must be available on request. The Charity Commission has guidance on charity audit exemption and charities should consult this guidance to understand their specific requirements.
By following these exemption criteria charities can be compliant with charity law and transparent in their financial reporting.
Finding a charity auditor
Regardless of your reasons for undergoing an audit, finding the right auditor is essential. As experienced charity sector accountants, our audit services can add value to your organisation.
You can rely on us to keep you in line with Charity Commission regulations while providing you with in-depth insight into your charity’s finances.
We know how stressful audits can be, so we’ll be discreet to minimise disruption to your charity operations as much as possible.
Get in touch with us today to find out more about our charity audit services.
