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Charities - financial reporting and scrutiny (England and Wales)

Technical helpsheet issued to help ICAEW members to understand key requirements relating to the financial reporting and scrutiny of charities registered in England and Wales.

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Issued: November 2012
Last reviewed: February 2020

Introduction

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members to understand key requirements relating to the financial reporting and scrutiny of charities registered in England and Wales.

Members may also wish to refer to the following related helpsheets:

Change of name

Prior to October 2018, this helpsheet was called "Charities – Financial reporting and scrutiny". It now applies to England and Wales only - separate helpsheets have been created for Scotland and Northern Ireland.

External scrutiny

Depending on its size, a charity may satisfy requirements regarding external scrutiny of the annual accounts by either an audit or independent examination.

For very small charities in England and Wales with gross income less than £25,000 there is no statutory requirement for either an audit or an independent examination but the trustees may wish to opt for one, or the charities governing document or wishes of a donor may necessitate one.

External scrutiny requirements for charities registered in England & Wales are summarised in Appendix 1.

Audit

In addition to the statutory requirements outlined in the appendix, an audit may be required by a charity’s governing documents, election by the trustees or at the request of a major donor.

Charitable companies additionally have to consider the audit requirements of the Companies Act 2006. A charity may for example be exempt from audit under the Companies Act 2006 but may require an audit under the Charities Act 2011. In such cases a Companies Act audit will fulfil the requirements of a Charities Act audit and negate the need for a Companies Act audit exemption statement in the accounts.

Where an audit is required, the auditor should refer to the ICAEW guide on Preparing an audit report for a charity.

Independent examination

Provided an audit is not required, an English or Welsh charity may opt for an independent examination instead of an audit. Independent examinations of charities with gross income between £250,000 and the audit threshold need to be carried out by a fellow of the Association of Charity Independent Examiners or a member of one of the following specified professional bodies:

  • Institute of Chartered Accountants in England and Wales,
  • Institute of Chartered Accountants of Scotland,
  • Institute of Chartered Accountants in Ireland,
  • Association of Chartered Certified Accountants,
  • Association of Authorised Public Accountants,
  • Association of Accounting Technicians,
  • Association of International Accountants,
  • Chartered Institute of Management Accountants,
  • Institute of Chartered Secretaries and Administrators,
  • Chartered Institute of Public Finance and Accountancy,
  • Institute of Financial Accountants, or
  • Certified Public Accountants Association.

Whether members of these professional bodies are in a position to accept an appointment as an independent examiner will be determined by the practicing certificate regulations of each of the professional bodies. Guidance on whether a member can undertake such an examination can be found in the helpsheet Can I undertake an independent examination of a charity? Advice should be sought if in any doubt.

Further guidance on carrying out an independent examination can be found in the Charity Commission publication Independent examination of charity accounts: examiners (CC32).

Basis of preparation

Most charities are required to prepare their accounts on an accruals basis. Non-company charities with gross income below £250,000 may instead opt for the preparation of receipts and payments accounts provided that the charity’s governing documents allow it and accruals accounts are not a condition of any donations or grants.

All charitable companies and Co-operative and Community Benefit Societies are required to prepare accruals accounts, as are all non-company charities with gross income in excess of £250,000.

The Charity Commission guidance Charity reporting and accounting: the essentials November 2016 (CC15d) explains the meaning of gross income as follows:

  • For accounts prepared on a receipts and payments basis gross income is simply the total receipts recorded in the statement from all sources excluding the receipt of any endowment, loans and proceeds from the sale of investments or fixed assets.
  • For accounts prepared on an accruals basis gross income is the total income as shown in the Statement of Financial Activities (prepared in accordance with the applicable SORP) for all funds but excluding the receipt of any endowment and including any amount transferred to income funds during the year from endowment funds in order to be available for spending.

There is no concept of pro-rating the income threshold in the Charities Act 2011 when the accounting period is not 12 months. The financial reporting requirements of charities are summarised in Appendix 1.

Receipts and payments accounts

The Charity Commission has produced guidance on using the receipts and payments basis for the preparation of a charity’s accounts in the Receipts and payments accounts pack CC16.

Accruals accounts

Charities preparing their accounts on the accruals basis must use FRS 102 (September 2015), the Charities SORP (FRS 102) and the Charities SORP (FRS 102) Update Bulletin 1 unless another SORP is more appropriate. Additionally, for periods commencing on or after 5 October 2018, Section 3 of the Charities SORP (FRS 102) Update Bulletin 2 must also be applied.

For periods commencing on or after 1 January 2019 (or if the triennial review amendments are early adopted), charities preparing their accounts on an accruals basis will instead apply FRS 102 (March 2018) and the Charities SORP (FRS 102) (second edition - October 2019), unless another SORP is more appropriate.

Charities are excluded from the micro entity regime and are therefore unable to apply FRS 105.

There is an exemption for smaller charities from the preparation of a statement of cash flows as only ‘larger charities’ (those with gross income exceeding £500,000) are required to present one (see Does a charity need a cash flow statement?). There are also other exemptions for smaller charities (those with gross income of £500,000 or below) with regard to the content of the trustees’ report.

A non-company charity preparing accruals accounts under the Charities SORP (FRS 102) will additionally need a true and fair override in its accounts as the 2008 regulations have not yet been updated to reflect FRS 102 as the appropriate standard. Please refer to Appendix 2 for more details on the true and fair override.

Group accounts

Parent charities are required to prepare group accounts if the aggregate gross income is in excess of £1,000,000. The aggregate gross income is taken after elimination of consolidation adjustments such as intra-group sales. Under the Charities Act 2011, there is no pro-rating the threshold for periods that are not a year in length.

True and fair override

Non-company charities in England and Wales (i.e. unincorporated charities and CIOs) preparing their accounts on an accruals basis need to apply a true and fair override to the Charity (Accounts and Reports) Regulations 2008 (SI 2008/629) which currently refer to the 2005 SORP and have not yet been updated. The Charity Commission’s view is that the requirement to prepare true and fair accounts takes precedence over the specific reference to the 2005 SORP in charity law.

Full details on the statements required to be included in the trustees report, accounts and independent examiner/audit reports as appropriate can be found in Appendix 2.

Filing deadlines

Charities are required to file their accounts and annual return with the Charity Commission and in the case of charitable companies are also required to file their accounts with Companies House.

Charities must file their accounts and annual return with the Charity Commission within 10 months of the year end.

If in doubt seek advice

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.

 

Appendix 1 - External scrutiny and other requirements (England and Wales)

Unincorporated Company CIO
Annual return
Gross income in excess of £10,000
 Applies to all irrespective of income
Trustees' annual report and accounts
Gross income in excess of £25,000 Applies to all irrespective of income
Receipts and payments accounts
Gross income does not exceed £250,000
All companies must prepare accruals accounts irrespective of income
Gross income does not exceed £250,000
Accruals accounts
Gross income in excess of £250,000
Gross income in excess of £250,000
Group accounts threshold
Required if aggregate gross income (after eliminating consolidation adjustments) is in excess of £1,000,000
Independent examination by person with requisite skills
Gross income in excess of £25,000 but not exceeding £250,000
Independent examination by professional accountant
Gross income in excess of £250,000 but not exceeding £1,000,000
Audit threshold
Gross income in excess of £1,000,000 
or
Gross income in excess of £250,000 and gross assets in excess of £3,260,000
Filing deadline
Filing with the Charity Commission within 10 months of the financial year end

Appendix 2 - True and fair override

Until the 2008 regulations are amended, the Charity Commission in its publication Charity reporting and accounting: the essentials November 2016 (CC15d) recommends the inclusion of ‘True and fair override’ statements for non-company charities preparing accounts on an accruals basis.

True and fair override - Trustees’ report

It is recommended that the following statement is included within the trustee’s report:

The financial statements have been prepared in accordance with the accounting policies set out in notes to the accounts and comply with the charity’s governing document, the Charities Act 2011 and the relevant version of the Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102).

True and fair override - Accounts

It is recommended that the following statements are included within the accounts:

The accounts (financial statements) have been prepared in accordance with the relevant version of the Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and the Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland (FRS 102) and the Charities Act 2011 and UK Generally Accepted Accounting Practice.

The accounts (financial statements) have been prepared to give a ‘true and fair’ view and have departed from the Charities (Accounts and Reports) Regulations 2008 only to the extent required to provide a ‘true and fair view’. This departure has involved following the relevant version of the Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) rather than the Accounting and Reporting by Charities: Statement of Recommended Practice effective from 1 April 2005 which has since been withdrawn.

True and fair override – Independent examiner’s report

Where an independent examiner’s report is prepared, it is recommended that the following reference is made in the first section of the examiner’s report as part of any comment on other matters:

Your attention is to drawn to the fact that the charity has prepared the accounts (financial statements) in accordance with the relevant version of the Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) in preference to the Accounting and Reporting by Charities: Statement of Recommended Practice issued on 1 April 2005 which is referred to in the extant regulations but has been withdrawn.

We understand that this has been done in order for the accounts to provide a true and fair view in accordance with UK Generally Accepted Accounting Practice effective for reporting periods beginning on or after 1 January 2015.

Ordinarily, whenever an independent examiner’s report is modified or contains an emphasis of matter, examiner’s would be required to report separately through to the Charity Commission as a Matter of material significance (see the helpsheet Duty to report to the charity regulator(s)). The Charity Commission has however advised that it does not expect to receive reports where the only issue is the true and fair override to the 2008 regulations.

True and fair override – Audit report

Where the accounts include the appropriate true and fair override statement (see above) there is no requirement to amend the audit report.

Where the accounts do not include the appropriate true and fair override statement, auditors will be required to qualify their audit report. Ordinarily, whenever an audit report is modified or contains an emphasis of matter, auditors would be required to report separately through to the Charity Commission as a Matter of material significance (see the helpsheet Duty to report to the charity regulator(s)). The Charity Commission has however advised that it does not expect to receive reports where the only issue is the true and fair override to the 2008 regulations.

Terms and conditions

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