If you own or manage a charity or social enterprises registered in the UK, it is important to understand whether or not your accounts need to be independently examined or audited. Generally, if your charity's income exceeds £25,000 per annum, an independent examination is required. However, there are some exceptions and other factors that must be taken into consideration when determining the best course of action for your charity. In this article, we will discuss what you need to know about independent examinations and audits for UK small charities.

Independent Examination: Income £25,000-£1 Million

If your charity has a gross income from donations, grants, and trading income between £25,000 and £1,000,000, it will have to undergo an independent examination. An independent examination is similar to an audit, but is less extensive and reduces the cost compared to an audit. An independent examination provides a basic level of external scrutiny and assurance, ensuring that your charity's accounts are accurate, transparent, and comply with the Charity Commission guidelines.

Independent Audit: Income Over £1 Million

Suppose your charity's gross income exceeds £1,000,000. In that case, it is mandatory to undertake an annual independent audit following the guidelines laid down by the Charity Commission. An audit is a more thorough process that evaluates your charity's financial statements and controls in place to protect your charity's assets. The audit requirement may also apply if your charity's total assets (excluding liabilities) exceed £3,260,000 and your charity's gross income exceeds £250,000. 

The auditor will express an opinion on whether the charity’s financial statements give a true and fair view of its financial affairs. He or she will also review the effectiveness of the charity’s internal controls and governance arrangements. The findings of an audit will be documented in an auditor’s report, which must be included in the charity’s annual report.

Exempt From Audits And Examinations: Low-Income Charities Below £25,000.

If your charity has an income of £25,000 or less, it will not usually require an independent examination or audit. However, external scrutiny is sometimes required of charities with gross incomes below £25,000. Although not legally mandatory, the charity’s governing document may require an independent examination or an audit to be performed, or this may be requested by the Board of Trustees. An audit examination may also be required by a grant-making body or by the Charity Commission.

Charitable organisations are accountable to their donors or the people they help, and their exposure to risk grows as they become better-known and more successful. The requirement for an audit or independent examination does not imply wrongdoing, poor management, or lack of transparency – rather, it provides donors with the accountability and credibility required to maintain trust in the sector, comply with charity law and best practice, and reassure donors that their contributions are being used effectively.

What Next?

For more information about auditing and accounting for charities, please get in touch with David Howard today. Our experienced team of third sector accountants can handle all your general accounting and auditing needs, including payroll, bookkeeping, and tailored advice for charities and flat management companies.

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