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Where charity begins

The charity accounting regime has changed. Val Steward outlines the main challenges for charities and their advisers.

With the changes to the accounting regime coupled with a change to the audit regime, charities and their advisers will be faced with a continually changing landscape during the next couple of years. The Charities Act 2011 (Group Accounts) Regulations 2015 came in for accounting periods ending on or after 31 March 2015 and will:

  • increase the audit exemption thresholds for charities to an income level of £1m (although the gross asset criterion will remain at £3.26m);
  • increase the threshold at which group accounts must be prepared (to the new audit threshold); and
  • broaden the class of bodies whose members can carry out independent examinations (IEs) of audit-exempt charities.

Charities and their advisers will need to stay on their toes to ensure that they consider the implications of the changes on the charity, and plan carefully to ensure that they avoid any pitfalls.

To audit or not to audit

The revised income threshold of £1m will inevitably mean that more charities will fall below the audit threshold. Before the best course of action for each charity can be determined, however, a number of key issues will need to be considered.

In the case of trading companies, we are used to looking at the turnover of the business when considering whether it requires an audit. But when dealing with a charity, the income calculation is total income from all sources, so we need to look at all sources of income disclosed within the Statement of Financial Activities to determine whether the criteria are met.

This is an extract from an article in the July/August 2015 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.

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