By Jo Goodsell, Senior Manager at Saffery LLP
As the sector awaits the imminent arrival of the revised Charities SORP, it’s worth taking a moment to refresh on the essentials of preparing and scrutinising charity financial statements.
What are the size thresholds for the different levels of scrutiny?
The relevant threshold will depend on whether a charity is registered in England and Wales and/or Scotland as the requirements are different. In Scotland, there is no minimum level of income below which a charity can avoid an independent examination, and this is the minimum level of scrutiny applied to all Scotland registered charity accounts. Below, we focus on charities registered in England and Wales:
The independent examination thresholds in England and Wales are:
- Income of more than £25,000
An independent examination is required. This must be carried out by an independent person who is reasonably believed by the trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts.
- Income of more than £250,000 (but below the audit thresholds still)
An independent examination must be carried out by Fellows of the Association of Charity Independent Examiners or members of eligible accounting bodies eg ICAEW, ICAS, or ACCA.
The audit thresholds in England and Wales are:
- Gross income in the year is greater than £1 million, or
- Gross assets of more than £3.26 million and income of more than £250,000.
The thresholds can be quite complicated. Care will need to be taken when assessing the thresholds particularly when:
- The charity’s constitution specifies that a certain level of scrutiny is always required,
- The assessment of ‘income’ level where a charity has an endowment fund, and
- It’s a long financial period; the thresholds cannot be prorated for a period longer than 12 months.
What are the key differences between an independent examination and an audit?
An audit is significantly more involved at the planning, fieldwork and completion stages.
This has inevitable implications for the costs of the work and therefore the fees charged to the charity.
However, an audit should bring additional benefits to the charity, as the auditor’s work leads to a much more detailed understanding of the charity. For example, an audit includes building an understanding of the charity’s key systems and controls and as a result of this the auditor will feed back about any identified deficiencies in controls.
As an independent examination is much more limited in scope, the amount of information the examiner will require will also be more limited. Usually, the examiner will ask for a small initial deliverables request (covering draft accounts, accounts workings, board minutes, bank statements, breakdowns of balance sheet items and any new significant contracts) which will then be followed up by queries during the examination work.
In both cases, it’s important to be well prepared and know what the examiner/auditor is expecting and what deadline everyone is working towards, so that the process runs more efficiently for all involved.
To find out more, please contact Jo Goodsell, Senior Manager at Saffery LLP, Jo Goodsell | Our People | Saffery
