Audits, thresholds and transparency

January 30, 2015 at 11:34

Last week, the Cabinet Office consultation on the future of the audit threshold for charities concluded. Charity Finance Group, in partnership with NCVO, responded to the consultation on behalf of members.

Audits are an important part of the regulatory landscape for charities, and the government has proposed lifting the threshold for which charities have to have their accounts audited from £500,000 to £1m.

We have supported this move, in line with responses from members to a previous consultation which proposed lifting the audit threshold. For many small and medium sized charities, audit costs can be significant and may not be necessary where the activities taken by the charity are relatively uncomplicated.

However, we also stressed in our consultation response that the audit process is useful in ensuring public and stakeholder confidence in charities as well as giving organisations a chance to get advice on accounting, risk, taxation, compliance and other regulatory issues. We want, therefore, to ensure that the option to voluntarily submit to an audit is clearly communicated to charities. In many cases, particularly where charities wish to deliver public services or receive investment, organisations may need to submit to an audit despite the threshold being increased – this information should also be communicated to charities to ensure that they can plan appropriately.

We did not agree that the income component of the asset threshold should be increased from £250,000 to £500,000. The current economic circumstances that we are in mean that charities with significant investment portfolios due to low yields, could end up being exempt from audit. This could lead to charities with significant assets not being subject to audit verification and increase risks for the sector.

We also highlighted to the government the need for the charities SORP to be updated so that links between disclosure requirements (around salary costs for example) and the audit threshold are reviewed. For example, if the threshold is raised to £1m, organisations between £500,000 to £1m may be exempt for providing details of salary costs if they choose not to prepare their SOFA on an activity basis. This was clearly not the intention of the SORP committee.

We will monitor closely the government’s response to this consultation and update members accordingly. We will also make sure to monitor the impact of this change, so that any problems are quickly identified. You can read our response here.

If you have any questions or comments, please leave a comment below or contact the policy team (policy@cfg.org.uk).