ICAS guidance on charity audit exemption in England and Wales

ICAS Charities Panel guidance on charity audit exemption for ICAS Members acting for charities in England and Wales.

This is the second edition of the guide (November 2022). It replaces the first edition of the guide which was published in March 2017.

Changes have been made to refresh the wording and the presentation of some aspects of the guide, and to update links to third party websites.

The guide reflects the requirements of the Charities Act 2011 and the Companies Act 2006.

There have been no changes to the audit, independent examination and accounts preparation thresholds impacting on charities in England and Wales since the first edition of the guide was published in 2017.

ICAS Members acting for Scottish charities should refer to our Guidance for ICAS Members acting for Scottish charities rather than to this guide, although both guides touch on the external scrutiny requirements of cross-border charities.

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. The Charities Act 2011 specifically disapplies charity law audit requirements to charitable companies above the company law audit threshold.

2. Change of legal form and external scrutiny considerations

Where a charity changes its legal form and a new legal entity is created, for example, when an unincorporated association becomes a charitable incorporated organisation (CIO) or a charitable company, this is considered to be a charity reconstruction.

There are differences in the accounting methods available for charity reconstructions for accounts prepared under the Charities SORP (FRS 102) and those prepared on a receipts and payments basis. The Guide addresses the methods available under the Charities SORP (FRS 102) only.

Under charity law, there are circumstances where an entity can change its legal form and a new legal entity is not created, for example where a charitable company or a community interest company converts directly to a CIO.  In such circumstances, there are no implications for the numbers in a charity’s accounts in a ‘conversion financial year’ and there is no successor entity.

3. ICAS guidance on the audit of charitable companies

The ICAS view is that a charitable company receiving an audit should always be audited under the Companies Act 2006.

Also, a charitable company should not receive an audit under the Charities Act 2011 unless specifically required to do so under that Act, with one exception. It is custom and practice for auditors to undertake the audit under both the Charities Act 2011 and the Companies Act 2006 where a charitable company is below the audit threshold set out in the Charities Act 2011. This is due to a grey area in the legal requirements whereby the Charities Act 2011 does not make specific provision for the audit of charitable companies below the charity law audit threshold.

Size of Company		Individual charitable company		Charitable parent company preparing group accounts
	Accounts preparation	Audit	Accounts preparation	Audit
Below Charities Act 2011 audit threshold	Companies Act 2006	Companies Act 2006, although practice is for the audit to be undertaken under the Charities  Act 2011 too	Companies Act 2006 and Charities Act 2011	Companies Act 2006 and Charities Act 2011
Above the Charities Act 2011 audit threshold but below the Companies Act 2006 audit threshold	Companies Act 2006	Companies Act 2006 and Charities Act 2011	Companies Act 2006 and Charities Act 2011	Companies Act 2006 and Charities Act 2011
Above the Companies Act 2006 audit threshold	Companies Act 2006	Companies Act 2006	Companies Act 2006	Companies Act 2006

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 Charities and Trustee Investment (Scotland) Act 2005 and regulations made thereunder, including the Charities Accounts (Scotland) Regulations 2006, 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.