Independent Examination of Charity Accounts

Some form of independent scrutiny is required for the accounts of all but the smallest charities.

Unincorporated Charities

The recently passed Charities Act 2006 introduces an increased income threshold for independent examination for accounting periods beginning on or after 27 February 2007.  Dependant on the new thresholds unincorporated charities may elect to have an independent examination providing their governing document allows such an election.

All charities whose governing document requires them to have an audit must do so and so if the governing document requires an audit it is worth considering executing a deed of amendment in order to amend it to allow for an independent examination (where the governing document can be amended).  Trustees should consider seeking professional advice from their legal advisors in relation to this at the earliest opportunity.

 

 

Independent examination is a less onerous form of scrutiny than an audit.  It provides less assurance in terms of the depth of work which is to be undertaken and the qualification necessary for the practitioner undertaking such work.

Unincorporated charities whose gross income is £500,000 or less in the relevant financial year and whose gross assets are £2.8 million or less at the end of the year may elect to have an independent examination subject to the provisions of their governing document.  Where gross assets exceed £2.8 million but gross income is less than £100,000 then unincorporated charities may still elect to have an independent examination.  There is no requirement for independent scrutiny where the gross income for the year in question is £10,000 or less.

 

An audit obligation may arise due to requirements outside of the Act, such as:

 

•    a requirement under the charity’s governing document (although if this means a higher level of scrutiny than otherwise required by the 2006 Act, the trustees may be able to amend the governing document as noted above);

•    a requirement under another statutory or regulatory regime, such as those relating to registered social landlords; or

•    a requirement placed on the charity by a donor or financier (eg. a loan-making institution).

 

Trustees may also opt for an audit if they prefer the higher level of assurance that it provides and should consider seeking professional advice from their financial advisors in relation to the suitability of an independent examination in their particular circumstances.

 

 

Incorporated charities are not currently eligible for independent examination and must, at present, comply with the accounts scrutiny requirements of company law.  As the provisions of the Companies Act 2006 are implemented charitable companies which qualify as a small company under company law will become subject to the scrutiny regime of the Charities Act 2006.

 

In his Written Statement of 13 December 2007, Stephen Timms (the Minister for Competitiveness) set out that the Government had decided to delay final implementation of the Companies Act 2006 until October 2009, in the light of advice from the Registrar of Companies that he can not be absolutely confident of implementing the necessary changes to Companies House systems and processes by October 2008.

Stephen Timms said that, whilst he aimed to make a commencement order in respect of all provisions to be commenced in 2008 before Christmas, there is to be a separate commencement order on the audit of small charitable companies.