If your charity is due an audit, you might not know what to expect. If you’re unsure what a charity audit entails, we’re here to tell you. Charity audits are nothing to worry about, and most charities undergo an audit when they reach certain income thresholds.
Although a charity can receive a bad audit, it’s unlikely if you have great accountancy practices in place (such as keeping accurate financial records and having key documentation prepared). To learn more about charity audits and what they usually involve, continue reading.
What is a Charity Audit?
A charity audit is a review of a charity’s financial accounts and actions. Audits inspect a charity’s financial records and transactions while ensuring all information is accurate as stated.
Audits are performed to not only ensure a charity is compliant but also to identify any financial errors while checking funds are being managed correctly. Additionally, audits help charitable benefactors understand where their money is going, helping uncover any potential cases of fraud.
Charity Audit Threshold Explained
What is the threshold for a charity audit? A charity will need to be audited if they have either:
- An income over £1 million
- Gross assets over £3.26 million and an income amount over £250,000
Charities in the UK must follow certain Government accounting guidelines. Within these guidelines, rules are in place regarding when charities must have an external audit performed. Charities that meet the above criteria must legally undergo an audit.
As well as audits, charities should also be aware of independent examinations – which is another type of review that some charities must undergo.
Is a Charity Audit and Independent Examination the Same?
No, a charity audit and an independent examination are not the same. Although the two share similarities and both involve an external review of accounts, they have a few key differences.
| Charity Audit | Independent Examination |
|---|---|
| More detailed check | Less detailed check |
| Must be performed by a registered auditor (usually a chartered accountant) | Doesn’t have to be performed by a registered auditor |
| More costly to perform | Less costly to perform |
| Required when charities have an income over £1 million or assets over £3.26 million and income amount of over £250,000 | Required when charities have a gross income of £25,000 or more |
| Provides positive assurance | Provides negative assurance |
The bottom line is that, although similar, both charity audits and independent examinations are two separate external checks. Essentially, charity audits are just a more effective and detailed version of independent examinations.
Can Your Charity Have its Accounts Independently Examined Instead of Audited?
As discussed, no, you cannot have your charity accounts independently examined instead of an audit unless your gross income is over £25,000 and no more than £1 million.
You won’t have the choice to choose between an independent examination and a charity audit. Whichever type of external review your charity undergoes is down to The Charity Commission.
Who Can Audit Charity Accounts?
Charity accounts must be audited by a registered auditor. This could either be a registered firm or an individual who has the authority to perform charity audits. A registered auditor will likely be a chartered accountant. Recognised auditors (and their firms) will be registered with either:
- Association of Chartered Certified Accountants (ACCA)
- Institute of Chartered Accountants in England and Wales (ICAEW)
What Happens During a Charity Audit?
So, what can you expect during a charity audit? Firstly, your charity audit will take place at a registered auditor’s office. During a charity audit, expect your registered auditor to:
- Ask for financial statements and records, as well as any other requested documents
- Examine your charity’s financial documents in-depth, including records and all transactions made
- Check the accuracy of your charity’s financial records
- Verify income and expenditure
- Evaluate evidence
- Present and discuss any major issues
- Create a complete audit report
Ultimately, the main goal of a charity audit is to ensure that all financial statements and records are correct, giving a true and fair view of the financials of your charity.
Does Your Charity Require an Audit?
If your charity requires an audit, you must find a registered auditor to complete it for you. We advise seeking audit services from a firm with charity experience. Unfortunately, many firms don’t have an adequate amount of experience working directly with charities, so it’s helpful to find someone who does.
Luckily, we can offer your charity all that you need, and have the experience necessary to perform your audit.
Auditing and Financial Reports at DH Business Support
We have a dedicated team of chartered accounts who specifically work with charities. Depending on the structure of your charity, you may need auditing. If so – allow us to help. Our trusted and professional team of registered auditors can perform your audit – providing all the information you need.
Audits fall under our charity accountancy service, which is most useful for charities who need their finances to be handled accurately. Our accounting services for charities are second to none and trusted by many. We’ll keep your finances on track while you get on with what matters most – ensuring your charitable business succeeds.
To find out more about our charity auditing and accounting services, please don’t hesitate to contact us today!