If a charity’s annual income is over £25,000, the trustees must arrange for an independent person or accountancy firm to carry out either an audit or an independent examination of their charity’s accounts for independent assurance that the charity's money has been properly accounted for and accounting records have been kept.
Most charities are able to choose to have an independent examination instead of an audit. An independent examination is a ‘light touch’ scrutiny because the examiner looks at specific matters only and typically costs less than an audit.
The trustees will usually have the ability to choose an independent examination instead of an audit if the charity’s gross income is:
- more than £25,000, but not more than £1 million, provided that
- if its gross income is more than £250,000, its gross assets (fixed assets plus current assets) are £3.26 million or less.
If the charity’s governing document, a funder or the Commission requires an audit to be carried out, then an independent examination will no longer be an option.
For guidance on how to do amend your governing document to remove an audit requirement, see Changing your charity’s governing document (CC36). If the governing document is dated before 1 March 1992, unless reference is explicitly made to an audit by a ‘qualified auditor or accountant’, then the term ‘audit’ may be taken to simply mean the requirement for some form of an independent scrutiny, so an independent examination is permitted.
It is the trustees’ responsibility to select a competent person who has the necessary skills and knowledge to undertake a successful independent examination. For those charities with an income of more than £250,000, the trustees must check that the person is qualified and eligible to act as their examiner (normally requires a qualified accountant).
The examiner must be independent of the charity and not influenced by their relationships with the charity and its trustees, so cannot be a trustee of the charity, nor related to a trustee. The examiner also cannot be an employee nor a major donor or beneficiary of the charity.
The guidance also sets out a number of practical points to inform the trustees of their responsibilities to the examiner and how best to prepare for the examination.
The trustees of charities with gross incomes of more than £1 million (or more than £250,000 and with gross assets of more than £3.26 million) must arrange for their charity’s accounts to be audited. They may not choose an independent examination.
The next step
For more information please contact Roger Merchant or your usual UHY adviser.
