In light of recent changes to audit thresholds, John O’Brien from Community Accounting Plus discusses the options now available, and things you should consider.
So we have now received the good news for smaller charities, the audit threshold has increased to £1m.
Some of you may remember the old days (pre 1992) when there were no rules. I seem to recall a 2 page SORP from the early 1980’s – yes it really was 2 pages long – but the Charities Acts of the early 1990’s, as well as bringing in a degree of consistency, also brought us the Independent Examination (IE).
The Charity Commission know the issues around confidence and risk and balancing this with the cost saving. IE is an option and there may be good reason to stick with the audit. So before you rush to cancel the audit, it’s worth taking time to ponder. You need to consider:
Your own rules
You must follow your rules. Hopefully they are written in such a way as to allow for audit or independent examination. If they are old enough (before the 1991 Act) then even if you only use the word ‘audit’ this is not binding and an IE is possible. But if your rules are more recent and you say you will have an audit then so be it. You’ll need to change them if you want an IE.
What do your funders think?
Check whether any funding or contractual conditions state that an audit is required, as you may be required to have audit. Even if not, you may find that your funders would not be happy if you go for an IE rather than an audit as they may want an additional level of assurance.
You ought to ask if not having an audit would reduce public confidence in your management of the charity. Personally, I am not sure if it has an impact (how many contributors to appeals like BBC Children in Need read the accounts before phoning the BBC?). That said there may be some who check and rely on the charity’s audit report, so bare this in mind.
Last, but not least, an Independent Examination should cost a lot less than an audit. As a very rough guide, I’d expect an audit of a £1m charity to be around £3-4,000. An examiner may charge up to £1,500. That means an extra £2k or so to do more charitable activity.
Before you decide, check your own governing document and consider the issues above. Then have a discussion with your auditors. There may be special circumstances within your charity that suggest that an audit would be wise, or your auditors themselves may provide the IE service. I think this is a good move for many charities, but just take a moment before you change…