UK Charity Audit Threshold: Everything You Need to Know

Charity Audit Requirements

Not all charities require a full audit, but those that do must follow strict regulatory requirements.

When is an Audit Required?

An audit is mandatory if:

• The charity’s gross income exceeds £1 million; or
• The charity’s gross assets exceed £3.26 million and its income exceeds £250,000.

Documentation and Procedural Obligations

If your charity falls into the audit category, here’s what to prepare:

• Financial Statements: Prepared in accordance with the Charities SORP.
• Trustee Annual Report: A narrative explaining the charity’s activities, governance, and financial performance.
• Internal Records: Bank statements, receipts, invoices, payroll records, and grant documentation.
• Minutes of Trustee Meetings: Evidence of financial oversight and decision-making processes.

Differences Between Independent Examination and Audit

Many charities fall into the middle ground where an independent examination is required but a full audit isn’t necessary. Here’s how the two compare:

FeatureIndependent ExaminationFull AuditScopeA basic review of financial statements for accuracy and complianceA detailed investigation into financial records, controls, and risk managementLevel of AssuranceLimited assurance that no material errors existReasonable assurance that financial statements are free from material misstatementsCostLower, as it requires less workHigher, due to the detailed nature of the auditOutcomeA report confirming whether the accounts comply with charity lawAn audit opinion confirming whether accounts give a true and fair view

Exemptions from Independent Examination and Audit

Some charities may be exempt from an independent examination or audit if:

• Their income is below £25,000, meaning they only need to prepare basic accounts and a trustees’ annual report.
• They are exempt charities under law, such as certain schools and religious organisations.
• They are wholly owned subsidiaries of a parent charity that consolidates financial statements.

Additional Considerations for Exemptions

• Receipts of Public Funds: Even if a charity is below the financial threshold, receiving government grants or public funding may require additional scrutiny.
• Funder Requirements: Some grant-making bodies or donors may still require an independent examination or audit as a condition of funding.
• Internal Governance: A charity’s trustees may voluntarily opt for an independent examination or audit to strengthen internal financial oversight and provide greater transparency.
• Changes in Financial Position: If a charity expects its income to rise above the threshold in the near future, early preparation for an independent examination or audit can help ensure a smoother transition.

Always check with the Charity Commission if you’re unsure about your charity’s exemption status.

Filing Charity Commission Returns

Regardless of size, all registered charities must file annual returns with the Charity Commission. The specific requirements depend on income:

• Under £10,000: No annual return required, but basic financial records must be kept.
• £10,000 – £250,000: An annual return must be submitted online.
• Above £250,000: The full accounts, trustees’ annual report, and an independent examination or audit report must be submitted.

Key Steps to File a Charity Return

1. Gather financial statements and trustees’ reports.
2. Log into the Charity Commission portal.
3. Complete and submit the online return.
4. Upload the necessary supporting documents.

Late filings can lead to reputational damage and, in severe cases, regulatory intervention.

Independent Examination and Audit Thresholds

The following thresholds determine whether a charity requires an independent examination or full audit:

• Income below £25,000: No formal external scrutiny required.
• Income between £25,000 – £1 million: Independent examination required.
• Income over £1 million (or over £250,000 if assets exceed £3.26 million): Full audit required.

Understanding these thresholds helps charities plan their financial reporting obligations efficiently.

Preparation for Charity Accounts

Before an independent examination or audit, it’s essential to get financial records in order.

Key Steps to Prepare

• Organise financial records: Ensure all bank statements, invoices, and receipts are up to date.
• Reconcile accounts: Make sure the books balance and all transactions are accounted for.
• Review internal controls: Identify weaknesses in financial processes to mitigate risks.
• Prepare the Trustee Annual Report: A well-written report ensures transparency and demonstrates how funds are used to achieve the charity’s objectives.

Good preparation speeds up the examination or audit process and reduces costs.

Raising the Charity Audit Threshold

There have been ongoing discussions about increasing the audit threshold to reduce the administrative burden on smaller charities. Arguments for and against include:

Arguments for Raising the Threshold

• Reduces compliance costs: Many small charities struggle with the financial burden of audits.
• Frees up resources: More funds can be directed towards charitable activities.
• Aligns with inflation: The current thresholds may not reflect the financial realities of today’s economy.

Arguments Against Raising the Threshold

• Potential for reduced transparency: Less financial scrutiny could lead to increased risks of mismanagement.
• Loss of credibility: Funders and donors may trust charities less if financial oversight is weakened.

While no changes have been confirmed, it’s a debate that charity leaders should stay informed about.

Final Thoughts

Charity financial compliance doesn’t have to be overwhelming. By understanding when you need an audit, how to prepare, and how to choose the right professional, you can ensure your charity stays compliant while focusing on making a difference. Staying on top of regulatory updates and best practices will only strengthen your organisation’s financial resilience and credibility.

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