Do you want the threshold for charity audits to be raised?

The Cabinet Office has launched a new consultation on increasing the thresholds at which a charity is required to have its accounts audited.

They want to reduce the regulatory burden caused by the requirements for independent scrutiny of charity accounts.

What is the consultation about?

Asking large charities to have their finances scrutinised is in the interests of good regulation and management, and helps to maintain public trust in them.

However, Lord Hodgson’s review of the Charities Act 2006 highlighted that a full audit can be an expensive and time-consuming exercise, and that the current threshold of £500,000 income per year is a low level at which to impose this requirement. On similar lines, the existing ‘asset test’ that requires organisations with assets worth £3.26m to undergo an audit was criticised by some as unnecessary and hard to apply in practice.

The recommendation was that the income level at which charities are required to have their accounts audited should increase from £500,000 to £1m.

The proposals

The Cabinet Office is seeking views about increasing the thresholds so that a charity is only required to have its accounts audited when it has:

  • An income of over £1m; or
  • One of either:
    • Assets worth more than £3.26m and an income over £500,000.
    • Assets worth more than £5m and an income over £500,000.

The consultation is also proposing to increase the threshold for group accounts (by charities with subsidiaries) from £500,000 to £1m.

The consultation is further looking into whether there are any professional accountancy membership bodies that can be added to the list of those whose qualified members can carry out independent examinations.

What could this mean?

The consultation estimates that the new proposals could affect between 3,800 to 4,000 charities and save over £5m per year. This is because independent examinations tend to be cheaper than audits, yet crucially still provide the assurance of having your accounts externally scrutinised.

Your views

We would like to hear whether you support these proposals and how they could affect your charity.

Income thresholds

Do you agree that the income threshold at which at which charities should have their accounts audited should be increased to £1m.

Assets

Do you agree that the income component of the asset threshold should be increased to £500,000?

Do you think that the asset component of the asset threshold should be kept at £3.26m (to maintain consistency with company law) or should it be raised to £5m.

Aligning the thresholds

Do you envisage any difficulties arising from the proposed changes?

For example, will the new audit thresholds confuse matters on how accounts need to be prepared? Non-company charities still need to prepare accrual accounts at £250,000, the new proposals add another threshold that could create confusion.

Group accounts

Do you agree that the threshold for preparing group accounts should be increased to £1m?

Independent Examiners

If you’ve used an independent examiner before, have you had any problems finding one suitable or available or no problems at all?

Getting in touch

We’d like to hear from you about the consultation proposals whether they will directly affect your organisation or not. Do you think they will be helpful to you or the sector overall?

The consultation ends on 27 January 2015 – please leave a comment below or send an email by 12 January to karina.russell@ncvo.org.uk

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Karina Russell was NCVO’s policy officer. She covered issues around public services, improving commissioning and procurement practice and advancing the social value agenda.

One Response to Do you want the threshold for charity audits to be raised?

  1. Sanjay Joshi says:

    I’m in favour of raising the threshold. I imagine that some affected charities will opt to continue to have a full audit, possibly through inertia and in some cases because of expectations set among funders. I see the probability of fraud being missed that otherwise would have been caught as slim; on the other hand there are clear benefits to the less onerous regulation