On the 31st March 2015, The Charity Commissions proposal to increase the thresholds for charity auditing came into action. The aim of the change is to not only help smaller charities gain access to support, but also to help relieve them of any regulatory burdens they may have.
What is Charity Auditing?
In order to instill confidence in the public and charity sector as a whole, it is important for charities to provide clarity on their financial and business activities, which is achieved through an annual audit. It is a legal requirement for charities, defined as large, to be transparent about their accounts. Larger charities must therefore declare and have their annual accounts audited by a registered auditor.
The 2008 Threshold
From April 2008, charities that are defined as small, had the opportunity to exempt themselves from undertaking an audit under the Companies Act.
Therefore, an audit only needed to be undertaken if a charity met any of the following requirements:
- An annual income, from all sources, of more than £500,000 (“the income threshold”);
- Assets worth more than £3.26 million and an income of more than £250,000 (“the asset threshold”)
What has changed?
From the review of the Charities Act 2006, it was agreed that thresholds would increase and audits would only be mandatory if a charity had:
- An income of more than £1 million;
- One of either:
- Assets worth more than £3.26 million and an income of more than £500,000
- Assets worth more than £5 million and an income of more than £500,000.
The Charity Commission also concluded that there would be an:
- Increased group income from £500,000 to £1 million
- Increased preparation threshold for group accounts from £500,000 to £1 million
- Extended list of professional accountancy membership bodies that are able to carry out examinations of accounts of charities with an income of more than £250,000
It is hoped that not only will these changes make it easier for charities to find an independent examiner, but also less charities will be required to have their accounts formally audited. It is therefore advised that charities review these changes, particularly those whose financial year has recently ended.
Raffingers Stuart provide specialist services to the Charity and Not- For- Profit sector – for further advice on these changes please contact Suda Ratnam.