ICAS publishes new guide on charity audit exemption in England and Wales

The ICAS Charities Panel has issued new guidance on charity audit exemption for ICAS members acting for charities in England and Wales.

Here is a flavour of the content of the guide.

1. Charities receiving an audit under the Charities Act 2011

For a charity registered with the Charity Commission for England and Wales (CCEW) and complying with Charities Act 2011, the audit threshold is:

• gross annual income greater than £1million; or
• gross assets of more than £3.26 million and a gross annual income of more than £250,000

For a parent charity registered with the CCEW and complying with the Charities Act 2011, the audit threshold is:

• gross income of the group greater than £1 million after consolidation adjustments

In addition, a charity will need an audit if:

• it is required to by the constitution of the charity, any other enactment, or on the instruction of its trustees
• in the case of a charity with a pre-1992 constitution, that constitution contains a requirement for an audit or examination by a professional auditor

If a charity is a company or a parent company above the Companies Act 2006 audit threshold, an audit should be undertaken solely under company law.

2. Change of legal form and external scrutiny considerations

Where a charity changes its legal form, for example when an unincorporated association becomes a charitable incorporated organisation (CIO) or a charitable company, this may be considered a group reconstruction.

The method of accounting used for a change in legal form may impact on the successor charity’s gross annual income in its first year and this could have on the external scrutiny requirements of the successor charity.

Should the audit threshold applying to the legal form of the successor charity be exceeded in year one of its existence, the charity’s trustees can apply to the CCEW for dispensation from having an audit. Applications for dispensation are made under Regulation 34 of the Charities (Accounts and Reports) Regulations 2008.

3. ICAS guidance on the audit of charitable companies

A charitable company receiving an audit should always be audited under the Companies Act 2006.

A charitable company should not receive an audit under the Charities Act 2011 unless specifically required to do so under that Act.  The exception to this is the practice followed by the auditors of charitable companies below the Charities Act 2011 audit threshold where the applicability of the Act’s audit requirements is not clear.

4. Independent examination

A charity registered with the CCEW which does not receive an audit requires an independent examination under the Charities Act 2011 unless its gross income is below £25,000.  Prior to undertaking an independent examination rather than an audit, it is vital to check that the charity is entitled to audit exemption under the law and does not otherwise require an audit.

5. Cross-border charities: the England and Wales perspective

A charity registered with the CCEW may be required to register with the Office of the Scottish Charity Regulator (OSCR) under the Charities and Trustee Investment (Scotland) Act 2005 depending on the extent of its activities in Scotland.

Where a charity is registered with the CCEW and with OSCR it must comply with both the 2005 Act (Scotland) and regulations made thereunder, including the Charities Accounts (Scotland) Regulations 2006 (as amended), in addition to complying with the requirements of the Charities Act 2011 and regulations made thereunder, including the Charities (Accounts and Reports) Regulations 2008 where relevant.

In the future, a CCEW registered charity may be required to register with the Charity Commission for Northern Ireland (the CCNI) under the Charities (Northern Ireland) Act 2008 and otherwise provide details of its activities in Northern Ireland.