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Lord Hodgson’s report published in 2012 on the Charities Act 2006 suggested that audit exemption should be made available to charities with income less than £1 million. The Charity Commission’s recent consultation has asked the sector for its comments on changing the audit threshold limits and other size limits currently in place within the Charities Act 2011.
The current audit exemption rules for charities in England and Wales are:
These limits have allowed the majority of small charities to fall within the scope of independent examination for external scrutiny other than when the charity’s constitution specifically noted that an audit was required.
A Statutory Instrument (SI 2015/321) has been laid before Parliament which increases the charity audit gross income threshold from £500,000 to £1 million.
Secondly, there is an extension of professional accountancy membership bodies who are able to carry out independent examinations of charities with income more than £250,000 with the addition of the Institute of Financial Accountants (IFA) and the Certified Public Accountants Association (CPAA).
Thirdly a Statutory Instrument (SI2015/322) in respect of groups has been issued which increases the group accounts limits and audit income threshold to £1 million.
These changes will be effective for financial years ending on or after 31 March 2015.
Charity officials and trustees will need to consider the impact of falling out of statutory audit in terms of funding streams and existing constitutions. Trustees may like the reassurance of having a full audit where the day-to-day responsibilities of managing the charity are delegated to a charity manager. The introduction of revised limits, which impact 2015 March year ends, may be available too soon for a number of charities who receive funding from government bodies and high profile funders. Charities may need to review the conditions attached within their funding agreements and receive confirmation that audited financial statements will no longer be a requirement of the funding.
Changes in constitutions to allow audit exemption may need to be voted by the charity’s membership at an annual general meeting. In terms of timescales, taking the exemption from audit and the adoption of a new constitution may result in the charity not being able to take exemption for the current financial year.
Karen Rae, Corporate Manager
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