Audits for Charities
Charity Audit Service
As chartered accountants and registered auditors, our experienced audit and assurance team enables us to provide high-quality audit services to a wide range of our clients. The audit and assurance team also undertakes audits for other accountants who are not registered to carry out audits themselves or where a high level of independence is required.Â
Does your charity need an audit?
The requirements for audits for charities are slightly different than for regular companies. An audit is mandatory for a charity if one of the following conditions is met;
- Income of more than £1m
- Gross Assets of more than £3.26m with income of more than £250,000
- If the charity has an income of more than £25,000 the accounts must be either audited or have an independent examination
How It Works
Step one
Consultation & Financial Audit
We start with a thorough review of your current financial systems to identify areas for improvement and ensure compliance.
Step two
Customised Financial Strategy Â
We develop a tailored financial plan based on our findings and implement best-in-class systems to meet statutory requirements.
Step three
Ongoing Financial Management and Support
Enjoy continuous support and regular communication to stay on top of your financial health and audit readiness.
What You Get
Detailed financial audit report
Customised financial strategy document
Monthly management accounts and reports
Quarterly system review and update reports
Annual financial performance review and strategic planning session
Assurance of compliance with statutory audit requirements
Tailored Pricing to Meet Your Needs
We understand that every business has unique financial requirements. Our pricing is tailored based on the specific services you need to achieve audit readiness and financial clarity. Contact us to discuss a customised pricing plan that fits your business.
Want to learn more?
Get in touch with our in house expert Chris Morey to see how we can help.
Audits for Charities
Audits ensure financial compliance but also build public trust through transparency and accountability. The charity sector presents its own unique challenges and opportunities when it comes to audits.
What is a Charity Audit and Why Conduct One?
A charity audit is a thorough examination of an organisation’s financial records to ensure accuracy and compliance for a charity’s accounts. We do these audits to ensure charities comply with the law and regulations. Compliance is key to retaining tax exemption and to be eligible for certain grants.
The audit process involves verifying the correct use of funds and reporting of financial statements. By reviewing internal controls and governance structures, the audit helps with risk management and operational efficiency. This thorough process protects the charity’s assets and its reputation.
Roles and Responsibilities of Trustees
Trustees play a key role in the audit process. Their responsibilities include appointing an independent auditor and overseeing the audit to ensure independence. Trustees need to be able to understand financial statements and the audit report to make decisions.
Transparency and accountability are key to trustees’ duties. They must ensure that financial practices comply with the law and ethical standards and also address any issues or recommendations raised during the audit to contribute to the charity’s overall governance and operational effectiveness.
Audits for Public Trust and Transparency
Audits help charities build and maintain public trust. Financial transparency gives donors and stakeholders confidence that funds are being used properly. When we do an audit we give charities the opportunity to show their commitment to ethical practice.
Transparent audits are essential for building strong relationships with regulatory bodies and grant-making organisations. They enhance the charity’s credibility, which in turn attracts more donations and funding opportunities. Public trust, which is vital for the charity’s survival, is significantly bolstered by thorough and transparent auditing practices.
By following our strict audit processes, we ensure that charities operate with the highest standards of integrity and efficiency. This builds a culture of transparency, which is crucial for the long-term success of the charity sector.
Legal and Regulatory Framework
Understanding the regulatory requirements for charities in the UK, the key provisions of the Charities Act and Companies Act, and the role of the Charity Commission and other regulators, is important for any charity needing an audit.
Regulatory Requirements for Charities in the UK
Charities in the UK are subject to a tight legal and regulatory framework to ensure transparency and accountability. Registered charities must comply with the Charities Act and Companies Act.
You must ensure your charity meets the specific financial reporting requirements. This means preparing annual accounts and reports which must be filed with the Charity Commission if your income is above certain thresholds.
Furthermore, charities must comply with the International Standards on Auditing (UK). These standards set out the guidelines for auditing to ensure financial statements give a true and fair view of the charity’s financial position.
Charities Act and Companies Act: Key Provisions
The Charities Act 2011 brings together previous legislation and provides a single legal framework for charities in England and Wales. It sets out the duties and responsibilities of trustees including the requirement to act in the best interests of the charity.
Under the Companies Act 2006, charitable companies are required to adhere to both charity law and company law. This dual compliance involves meeting specific requirements for financial statements, as well as conducting annual audits or independent examinations, depending on income thresholds.
You also need to keep proper records and make sure your charity’s governing document is up to date and compliant with the law.
Charity Commission and other regulators
The Charity Commission for England and Wales is the main regulator for charities and aims to ensure charities operate legally and ethically. It provides guidance on the Charities Act and makes sure charities file their annual returns and accounts as required by law.
The Commission can investigate charities and take enforcement action if needed. You must also consider other regulators such as the Office of the Scottish Charity Regulator (OSCR) and the Charity Commission for Northern Ireland depending on where your charity is registered.
Financial Reporting and Statements
Preparing Accurate Financial Statements
Charities should prioritise accuracy of financial statements which is key to transparency and trust with stakeholders. To achieve this we recommend having robust internal controls to verify accurate capture and classification of every financial transaction.
Reconciling accounts and reviewing regularly helps us catch discrepancies early. We use accounting software to collect data and make sure all financial activity is recorded.
Keeping documents and source materials in order helps accuracy. Financial statements usually include a balance sheet, income statement, cashflow statement and notes to the accounts. The income and expenditure account is important for annual accounts, especially for charities, as it includes financials for a specific year and is part of the reporting requirements for compliance with accounting regulations.
Statement of Recommended Practice (SORP)
The SORP provides sector-specific guidance for charity financial reporting to ensure consistency and transparency. Understanding the Charities SORP is key to compliance and presenting a clear financial picture.
It sets out how to recognise, measure, present and disclose specific transactions and items. This framework allows us to follow the best accounting practices. By following the SORP we ensure your reporting is consistent and meets the expectations of regulators and stakeholders.
For charitable companies and larger charities with an income of £250,000 and above, the Charities SORP is a key tool for financial reporting.
True and Fair View
Ensuring your financial statements provide a true and fair view is not just a regulatory obligation but also a testament to your integrity and transparency. This requires that your financial statements accurately represent the charity’s financial performance and position.
To have a true and fair view you must not intentionally misstate or omit material financial information. This means that you must thoroughly review and have an objective view on all the reported data.
When preparing financial statements, our goal is to present a balanced, accurate, and complete picture. This approach fosters trust and reliability, strengthening your reputation and bolstering confidence among donors and stakeholders.
Audit and Types
Audits for charities involve a thorough review to ensure financial transparency and regulatory compliance.
Types of Charity Audits
Charity audits fall into several categories. If a charity’s gross assets are above £3.26 million and other income criteria are met, then there are legal requirements for audits and specific reporting. The most common are statutory audits which are required for larger charities with significant annual income or assets. These audits ensure compliance with regulatory requirements and maintain public trust.
Another type is the non-statutory audit, undertaken by smaller charities. Non-statutory audits focus on checking financial accuracy and internal controls. Whilst not required for smaller organisations, it can be beneficial to have one to maintain financial integrity.
Each type of audit has its own purpose but all aim to give stakeholders a clear and accurate picture of the charity’s financial position.
Independent Examination
An independent examination is required for charities below the audit threshold, but above a certain income level. For charities with gross income above certain thresholds, an independent examination is an alternative to a full audit. The appointed independent examiner must be a member of a specified professional body under the Charities Act. The process is less onerous than a full statutory audit but still important; it involves a detailed review of the charity’s financial statements.
The examiner checks the records against set criteria to ensure they are consistent and reasonably accurate. This process doesn’t go as deep as a full audit, yet it can still identify any issues or discrepancies.
Independent examinations also validate internal controls to ensure the charity’s financial activities are aligned with its objectives. As examiners, our role is to facilitate this process quickly and thoroughly.
Internal and External Audits
Internal and external audits have different roles within a charity. Internal audits are conducted by internal staff or departments to review risk management, internal controls and governance processes. These audits are to improve operational efficiency and identify areas for improvement.
External audits are conducted by independent external auditors. Their main purpose is to give an independent view of the charity’s financial statements to ensure compliance with legal requirements and accounting standards.
Both types of audits have their purpose. Internal audits are for ongoing improvement and external audits are for credibility and assurance to stakeholders. Balancing both enhances a charity’s overall financial health and operational transparency.
Accountancy and Auditor Expertise
Our expertise in accountancy and auditing in the charity sector means you can be sure of a high quality service and compliance. We focus on the financial integrity, transparency and efficiency of charitable organisations.
Choosing the Right Auditor or Accountant for Your Charity
Choosing the right auditor or accountant is key to good financial management as charities have their own unique requirements and complexities that require sector specific knowledge. Professionals with experience in the sector bring valuable insights and expertise as they know the charity regulations and funding dynamics so can ensure compliance, improve financial reporting and maintain proper accounting records.
What the Professional Bodies Say
Professional bodies like ICAEW give us guidance. Through their publications and guidelines we keep up to date with charity finance and accounting. This means our practices are not only compliant but also best practice.
We also benefit from continuous professional development offered by leading institutions. Their insights and updates help us maintain the highest standards in charity finance and accounting. By aligning with industry best practices, we ensure that our clients receive expert advice tailored to the unique challenges of the charity sector.
Global Auditing Standards
Adherence to International Standards on Auditing (ISA) is non-negotiable for audit quality. ISAs provide a framework to ensure the reliability and integrity of our audits. Our adherence to these standards shows our commitment to transparency and ethics.
By following global standards, we increase the credibility and trust in our audits, which benefits the charity sector as a whole.
Compliance and Best Practice
Ensuring your charity remains compliant and adheres to sound financial management practices is essential. Leveraging technology can enhance the efficiency of our audits, allowing us to deliver even more effective results.
Compliance with Legal and Regulatory Requirements
Meeting legal and regulatory requirements is fundamental for any charity. We must be aware of and comply with all relevant laws including the Charity Governance Code and the Charity Commission requirements.
Compliance means regular training for staff and trustees so everyone knows their role. Keeping accurate and up-to-date records is vital. This allows you to provide evidence of your compliance and transparency.
You must also keep up to date with changes in legislation. You should sign up to regulatory body updates and attend industry seminars and workshops. This way you can stay compliant and continue to serve your community.
Good Practice in Financial Management
Good financial management is key to the survival of your charity. This starts with robust accounting systems that give you real time visibility of our finances.
Internal controls help you protect your resources. For example, separation of duties in financial processes can prevent errors and reduce the risk of fraud. Regular financial audits and reviews will pick up issues early.
Timely reporting to stakeholders is key. Transparent and accurate communication not only builds trust but also demonstrates your accountability. This increases your likelihood of securing funding and support from donors.
Technology’s role in audit efficiency
Technology plays a vital role in enhancing the efficiency and accuracy of our audits. Automated accounting systems minimise data entry and reduce human error, while cloud-based platforms enable access to financial information from anywhere. This allows us to conduct remote audits and collaborate seamlessly, further improving the audit process.
Modern audit software has analytical tools to help us identify trends and anomalies in financial data. This will help you make better decisions and improve your financial practices. Using secure systems will also keep your financial data safe from cyber threats.
Investing in the latest technology shows you are committed to staying ahead. By doing so you can improve your audit processes and your overall financial management.
Risk Management and Fraud Prevention
Strategies to Manage Risk and Prevent Fraud
Proactive strategies are key to managing risk and preventing fraud. A full fraud risk assessment will help us identify vulnerabilities in your financial systems. Robust internal controls and financial audits will give us oversight and accountability.
Training staff on fraud awareness will mean everyone knows how to spot and report suspicious activity. Using technology for data matching and cyber security will help prevent fraudulent activity. Working with external auditors and fraud specialists will give us additional insight and recommendations for best practices.
Fraud’s Impact on Charities and Donors
Fraud affects both charities and donors. Financial loss reduces the funds available for charitable activities and can impact the organisation’s ability to deliver its mission. Fraud also damages the charity’s reputation and erodes trust and confidence with donors and beneficiaries.
For donors, discovering fraud within a charity they support can lead to feelings of betrayal and a reduced likelihood of future contributions. However, transparent communication and prompt action to address the issue can help mitigate these effects and preserve donor trust.
Money Laundering and Proceeds of Crime
Money laundering and the proceeds of crime pose a big risk to charitable organisations. Charities can be used unintentionally as a vehicle to launder illicit funds, undermining their integrity and effectiveness. Regulatory compliance means we must adhere to anti-money laundering (AML) regulations.
You should be vigilant in monitoring financial transactions and reporting suspicious activity to the authorities. Working with law enforcement and financial institutions will help us detect and prevent money laundering. Having robust AML protocols will protect the organisation and ensure donations are ethical and legal.
Charity Finances and Budgeting
A charity’s financial health hinges on effective budgeting and careful monitoring of income and expenditure. We prioritise refining your budgeting processes and ensuring compliance with regulations governing investment income.
Developing a Budget
A budget is the foundation of any charity’s financial position. It is a financial blueprint that ensures all expenses are accounted for and aligned with the charity’s objectives.
We start by gathering historical financial data, looking at past budgets, and assessing current financial needs. This will enable us to forecast income and expenditures.
Budgets need to be reviewed regularly. Reviewing your budget regularly will allow you to make adjustments as financial circumstances change. This proactive approach will keep you financially resilient and prepared for any unexpected events.
Having a contingency fund in the budget is another key element. This will allow you to respond to unexpected expenditures without compromising your core activities.
Income and Expenditure Scrutiny
Scrutiny of income and expenditure is key to financial responsibility. Financial audits are often required based on a charity’s gross income with specific thresholds for when an independent audit or examination is needed. You must track every revenue stream whether it’s from donations, grants or fundraising activities.
Keeping accurate and up-to-date accounts will help you monitor your financial health. Internal financial controls will help you manage financial and asset risks and ensure funds are allocated and spent correctly.
Audits or independent examinations will verify your financial statements. For small company charities, accounts must be audited or independently examined under the Charities Act. This will also highlight any material issues that need attention so we can act quickly.
Investment Income and Regulation
Investment income is another revenue stream, but it needs to be heavily regulated. Any investment activity must align with your ethical framework and financial objectives.
You should strictly adhere to the guidelines set out by the UK Charity Commission on investment. This includes due diligence on all potential investments and ensuring they align with your charity’s mission and the law.
Having an investment policy statement (IPS) is key. This document will outline the acceptable investments, risk tolerance and expected return. Continuous monitoring of investment performance will ensure these assets contribute to the charity’s financial stability without introducing unnecessary risk.
By having structured financial planning and oversight, you will strengthen your charity’s financial position and ability to achieve its objectives.
Reporting Requirements and Exemptions
We will guide you through your reporting requirements and highlight the exemptions available. We will simplify the often complex requirements so you can focus on your charitable activities.
Submitting an Annual Report and Return
Charities must submit an annual report, trustees’ annual report and annual return to the Charity Commission to demonstrate financial accountability. The annual report is a comprehensive document that will provide an overview of the charity’s activities, achievements and governance. It will show how the charity has met its objectives over the year. The annual return is an online form that must be completed and will capture key information about your charity such as income, expenditure and trustee details. Accuracy is key as inaccuracies can lead to regulatory scrutiny or penalties.
Exemptions for Small Charities
Small charities may be eligible for some reporting exemptions reducing the administrative burden. As of the latest guidelines, charities with an income below £25,000 are generally exempt from filing full audited accounts. They file a simplified annual report and accounts. Exempt charities still need to keep accurate financial records and may need an independent examination of their accounts. This reduces the time and resources required for compliance while maintaining transparency and accountability. For more detailed exemptions, including those under the Companies Act 2006 and the Charities Act 2011, you can review this guidance on audits for company charities.
Group Financial Statements
Charities that are part of a group must comply with specific reporting requirements. Group financial statements will give a consolidated view of the financial activity of the parent charity and its subsidiaries. Not all parent charities have to produce group financial statements; exemptions will depend on income levels and the structure of the charity group. Trustees should stay up to date with the latest regulations to ensure full compliance. For more information, you can refer to the Charity reporting and accounting essentials.
Sector-Specific Auditing Considerations
When auditing charities, we must consider the specific requirements and regulations that apply to different types of charitable entities. Various factors, such as legal frameworks, auditing standards and regional variations, must be understood.
Charitable Organisations vs Company Charities: Key Differences
Charitable organisations and company charities have different operational structures that impact the audit process. Charitable organisations (often non-profits) are focused on altruistic goals and rely heavily on donations and grants.
Company charities, while also aiming to achieve philanthropic outcomes, operate more like businesses. They generate income through sales or services. Therefore our audits for a charitable organisations will look at donation tracking, grant usage and alignment with donor restrictions.
For company charities, we look at revenue streams, profit margins and compliance with charity laws and business regulations. These differences require a tailored audit approach to ensure accuracy and compliance.
Auditing Standards for Societies and Other Social Entities
Societies and other social entities, such as social enterprises, follow specific auditing standards that are different from a corporate audit. These standards are set out in Practice Note 11 which guides auditors on applying International Standards on Auditing (UK) to charities.
Our audits look at both financial and non financial aspects such as social impact and compliance with social mission. For societies, we check adherence to member agreements and use of membership fees.
Social enterprises have dual goals of profit and social impact, so we look at financial performance and social outcomes to give a full review that satisfies both financial and mission driven stakeholders.
Regional Variations: Scotland and Northern Ireland
Auditing requirements can vary significantly between regions, such as Scotland and Northern Ireland. Each region has its own legal and regulatory framework which affects our audit procedures.
In Scotland, we follow guidance from the Office of the Scottish Charity Regulator (OSCR). Specific requirements include detailed financial reports and compliance with the Charities and Trustee Investment (Scotland) Act 2005. In Northern Ireland, the Charity Commission for Northern Ireland (CCNI) sets out reporting requirements and mandatory disclosures.
Knowledge of these regional differences means our audits meet local legal requirements and give region-specific reviews that meet national and local standards. This is essential for maintaining the reputation and integrity of charitable activity across the UK.
Supplementary Resources
Charity-Specific Guidance from Accounting Bodies
Accounting bodies provide detailed charity-specific guidance, ensuring that audits meet precise requirements. For instance, the ICAEW’s guidance on preparing audit reports for charities highlights necessary amendments to standard audit reports, including changes in terminology such as switching “directors” to “trustees.” Similarly, the materiality guidance from ICAEW outlines thresholds for financial statements, ensuring precision in reporting.
Staying Informed about Regulatory Changes and Updates
Staying current with regulatory changes is paramount for effective charity audits. Regular updates from authoritative bodies such as the Charity Commission ensure compliance with the latest standards. For instance, the Charity Commission’s overview of charities by income bands provides essential insights that help auditors tailor their procedures according to the charity’s financial status. Regularly consulting these updates guarantees that we remain aligned with the evolving regulatory landscape.
By leveraging these supplementary resources, we enhance the robustness and thoroughness of our charity audit processes, ensuring that you remain compliant, accurate, and up-to-date with regulatory requirements.
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