If you’re a trustee, understanding whether your charity meets the audit threshold for charities is essential.
It’s your responsibility to meet the requirements set out by the Charity Commission. Depending on your charity’s income and assets, this may include arranging a full charity audit or an independent examination of your charity accounts.
In this guide, we’ll outline the thresholds you need to be aware of as well as other scenarios where an audit may be necessary.
Do you meet the audit threshold for charities?
Full audit threshold
Your charity will need to undergo a full external audit if it meets either of the following conditions:
- 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 threshold
Charities with turnovers between £25,000 and £1m won’t usually need to undergo a full audit. However, they may need to arrange an independent examination.
What’s the difference between an audit and an independent examination?
Under charity law, trustees of registered charities need to prepare annual reports and accounts. These documents inform stakeholders of what the charity has achieved that year and how it raises and spends its funds.
The role of an independent examiner is to check that these reports look correct. However, they also assume that your underlying financial records are accurate to begin with.
Since this process is not as thorough as a full audit, the process is generally quicker, cheaper and less disruptive.
Meanwhile, a full charity audit is an in-depth 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 that the accounts are accurate. Some audit services also include deeper insights into your financial statements and practical advice on managing funds.
If you don’t meet the threshold
Generally speaking, you’re not required to arrange an audit or independent examination if your charity’s turnover is less than £25,000 a year.
However, you may need to undergo an audit for other reasons. For example, to meet requirements set out in the charity’s governing documents or conditions imposed by the founder.
You must keep accurate, up-to-date financial records for your charity, regardless of whether it meets the audit threshold for charities or not.
Many charities choose to undergo an audit despite not meeting the £1m threshold.
An independent auditor can provide expert insight into your charity’s finances, which can be particularly useful if you run a smaller charity without a dedicated finance team.
Arranging a voluntary charity may help you to:
- Reassure stakeholders — an external audit may reassure trustees and stakeholders that your charity’s finances are well-managed.
- Prevent fraud — greater transparency can help prevent fraud within the charity.
- Make better financial decisions — an in-depth understanding of your charity’s finances can help you make better financial decisions.
- Improve reputation — audited financial statements may improve your charity’s reputation, making it easier to secure funding.
- Refine financial processes — auditors can highlight areas for improvement within your charity, potentially saving you time and money in the long run.
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.