UK Charity Audit Requirements, Including Commission Independent Examination & Charity Audit Threshold

UK Charity audit and independent examination of accounts requirements, including thresholds, the difference between audit and independent examination, and how to find an auditor or independent examiner, with links to the Charity Commission guidance.  At the end are sections on how to prepare your charity annual accounts and file your annual return.

Independent Examination And Charity Audit Thresholds

If you annual income is £25,000 or more you have exceeded the threshold and will be required to get your accounts checked.

The threshold for a full audit is if you have:

1. income over £1 million or.
2. gross assets over £3.26 million and income over £250,000.

The only exception is where the Commission has approved an independent examination of a particular year’s accounts instead of an audit.

Although unusual there may be a requirement for an audit in your governing document, and the Charity Commission, or a funder may also require an audit report.

If the above do not apply, you will require an independent examiner's report instead.

Independent Examination And Audit - Exemptions

If your income is under £25,000, the Charity Commission does not usually require audit or independent examination of charity's annual accounts.  Although unusual, there may be additional external scrutiny requirements.  A particular example is Parochial Church Councils.

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The Difference Between Independent Examination & Audit Reports

Being Scottish, the biggest difference is that an independent examination is much cheaper, but that's because it's less thorough.  Both are types of independent scrutiny, and provide a report to the trustees

• Independent examination - provides 'negative assurance'.  That is, checking that the accounts look correct and agree with the records, but assumes that the underlying records are correct. Charity Commission CC32 provides guidance on what an examiner must do and his or her role and responsibilities.
• Charity audit - provides 'positive assurance', by also verifying that the underlying records are correct.  It's a far more in-depth process, takes a lot more time and needs to be conducted by a qualified auditor, so it costs more.

Both provide some, but not absolute, assurance the accounts are accurate and correctly compiled, but not that the charity is making good financial decisions, although a good auditor/examiner may well offer help and suggestions.

Charity Independent Examiner Requirements & Reports

An independent examiner must:

• Be independent of the charity.  Independence means that the examiner must not be influenced, or could not be perceived to be influenced, by their relationships with the charity and its trustees.
• Have the requisite ability and practical experience to carry out a competent examination.  Specifically:
  1. Income over £250,000 - a member of one of the accountancy bodies listed in the Charities Act 2011.
  2. income £250,000 or less - an understanding of accounting principles, accounting standards and the Charities SORP.
  3. income £250,000 or less and your charity has opted to prepare receipts and payments accounts - sufficient financial awareness, numeracy skills and relevant experience to carry out the work and make the judgements required.

You can find full details of the Charity Commission requirements for independent examiners here.  if you need it, the independent examiner reporting template is here.

How To Find An Independent Examiner Or Charity Auditor

Personally, I usually speak to sister charities, CICs, or small businesses in my local area.  If you don't know any, Google 'charities near me'.  Having someone local is useful and they'll be able to give you some sort of recommendation and an indication of cost.  If you're a small charity and know an accounting practice, you could always try asking if they'd carry out an examination pro bono.

Charity Intelligence have a nationwide network of accountants and other finance professionals you can browse. The Association of Charity Independent Examiners also have a list and here's a list of charity auditors.  I have no commercial relationship with any of these organisations and, presumably, companies pay to be included on these lists.

How To Choose An Independent Examiner Or Charity Auditor

• Regulatory.  What the regulations require is the minimum you must meet.
  • A check, a qualified examiner, or an audit.
• Sector Experience.  Certainly, for an auditor, I'd always look for someone with charity sector experience, because charities have specific rules and regulations that don't apply to other organisations.  Good ones may offer more wide ranging advice and will make you aware of any regulatory changes you may need to know about.
• Cost.  If you don't require an audit, but are thinking about one, be clear what the benefits to you would be and that the additional cost would make this worthwhile.
• Location.  Being local to you can be useful, particularly for visits to check your accounts and to meet the trustees.
• Other Services.  Some organisations provide clients with free access to webinars or training events, or similar.

Whatever you choose to do, always shop around and, even if your current provider is delivering a quality service, it's good practice to retender every few years.

How To Prepare Your Charity Accounts

Use this toolkit to identify what the Charity Commission needs you to do to prepare your annual accounts.  You may also find Charity Commission CC16 (Receipts and payments accounts pack) and CC17 (Accruals accounts pack - SORP FRS 102) useful.

There is sometimes confusion between cash and accrual accounting - the difference is one of timing.  If you record income or expenses when you pay or receive money, it’s cash based accounting. If you do it when you receive a bill or raise an invoice, it’s accruals based accounting.  Often, small charities use cash based accounting and larger ones accruals.

How To File Your Charity Commission Annual Return

For everything you need to know to prepare and submit your Charity Commission annual return and file your accounts, use this Charity Excellence guide.

Charity Commission E&W Audit Requirements

The detailed audit requirements and thresholds are in CC32 (Independent Examination and Audit).

Charity Audit & Independent Examination FAQs

• Do we need a charity audit?  If your income is under £25,000, the Charity Commission does not usually require audit or independent examination of charity's annual accounts.
• What is the charity audit threshold?  You will need a charity audit if you have income over £1 million or gross assets over £3.26 million and income over £250,000.
• Do we need an independent examination of charity accounts?  You will need a charity independent examination, once your annual income reaches £25,000 pa.
• What is the purpose of an independent examination of accounts?  The purpose of an independent examination is to provide some independent assurance that the charity’s money has been properly accounted for and accounting records kept.
• What is an independent examination?  Independent examination is a ‘light touch’ scrutiny involving the examiner checking for specific matters only. It is narrowly defined and does not involve an opinion as to whether the accounts are ‘true and fair’, it usually costs less than an audit.
• What is the difference between audit and independent examination?  An independent examination provides 'negative assurance'.  That is, checking the accounts, but assuming that the underlying records are correct. Charity audit provides 'positive assurance', by also verifying that the underlying records are correct.
• Who can complete an independent examination?  The independent examiner must be entirely independent of the charity, doesn't have to be a qualified auditor or accountant but may have to belong to an accountancy body, and must have a good knowledge of charity accounts and related matters.
• Does an independent examiner need to be qualified?  For charities with income over £250,000, an independent examiner must be a member of one of the accountancy bodies listed in the Charities Act. Charity Commission CC32 provides guidance on what an examiner must do and his or her role and responsibilities.

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This Resource Doesn't Constitute Professional Opinion

I have worked in the sector at senior level for many years and hold an ACCA postgraduate qualification, but am not an accountant and no advice can be applicable to all organisations, in all circumstances, so this resource does not constitute professional opinion.  Essentially, I've summarised the wide ranging and detailed regulatory guidance and augmented this with my own experience and Internet research to create a layman's guide, with links to the source guidance. I hope you found it useful.