Yes, charities can also benefit from an audit

Feb 28, 2023 | Business, Tax

Auditors often focus on profit-driven companies and businesses, but they’re not the only ones that can benefit from an audit — charities can too.

In this blog, we delve into these benefits and explain just about everything else you need to know about charity audits. Read on to find out more.


When does a charity need an audit?

In most cases, charities work under the governance of the Charities Act and, for incorporated charities, the Companies Act.

Under the Charities Act, charities with an annual income of £25,000 or more will need an examination of their accounts, although they can still choose to do a full audit if they wish.

Charities are required to have a full audit for a financial year if they have:

  • income in the year over £1 million, or
  • income in the year above £250,000 and gross assets exceeding £3.26m.

The only exception is when the Charity Commission has approved an independent examination of a particular year’s accounts instead of an audit.

If your income is below £25,000, the Charity Commission does not usually require an audit or independent examination of a charity’s annual accounts. However, if the trustees of the charity request an audit, you will have to organise one.

Please note that the Charities Act applies only to charities in England and Wales. Scotland and Northern Ireland have separate legislation governing their charity sectors, which may have different audit requirements.

Incorporated charities have to arrange an audit if they have:

  • turnover of more than £10.2 million
  • balance sheet total of more than £5.1 million
  • more than 50 employees on average.

They also arrange an audit if its articles of association, shareholders, members or creditors require it to do so.

Charities that fall under both Acts must submit their accounts to Companies House and the Charity Commission for audit and publication.


What happens during a charity audit?

During a charity audit, an independent auditor or accounting firm examines a charity’s financial records, systems and procedures to determine its compliance with the law and the accuracy of financial statements.

Here are some of the critical steps involved in a charity audit:

  • Planning. The charity’s management team and auditor will meet to understand the scope of the audit and identify key areas of risk or concern.
  • Internal controls review. The auditor will review the charity’s accounting procedures and financial reporting systems to ensure they are adequate to prevent fraud and errors.
  • Testing of transactions. After selecting a sample of transactions from the charity’s financial records, the auditor will test them to ensure they are appropriately recorded and classified.
  • Review of financial statements. The auditor will review the charity’s financial statements, including the balance sheet, income statement and cashflow statement to assess accuracy and completeness.
  • Compliance review. The financial inspector will review the charity’s compliance with laws and regulations, including tax laws, reporting requirements, and donor restrictions.
  • Reporting. Finally, the auditor will issue a report that provides an opinion on the charity’s financial statements and internal controls, as well as areas of concern and recommendations for improvement.


Benefits of charity audits 

The audit process for charities might look exhausting and time-consuming, but it’s still worth arranging one, given the multitude of benefits that comes with an examination of your organisation.

First and foremost, audits assure donors, supporters and other stakeholders. By demonstrating that your financial statements are accurate and reliable, you can increase your charity’s credibility and trust to attract more funding and support.

If you find gaps in your statements, don’t fret — the first step to improving your financial reporting is identifying the reasons behind the problem, which an audit will help uncover. Meanwhile, your audit report will recommend how to make your charity operate more efficiently and effectively, helping you gain support and trust among stakeholders in the long run.

Similarly, auditing can uncover irregularities or fraud in your charity’s financial records, helping you devise methods to prevent any more from happening.

Lastly, an audit can identify weaknesses in your charity’s governance structures and recommend improvements. This will ensure your charity follows its best practices and that its activities align with its charitable objectives.

You’ve seen how beneficial an audit can be for your charity. So, whether you need to get one per the law, or are thinking about arranging one voluntarily, consider the auditing expertise of Simpson Wreford & Partners

By emphasising communication and actionable advice, we aim for each client to reap all the benefits of an audit. Get in touch with us today. 

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