Charities: A Guide to the Audit and Audit Requirements

We at Perrys pride ourselves on our work with many charities, helping them fulfil their reporting requirements with the Charity Commission. These include performing audits for those charities who need them. A Charity’s audit is a form of scrutiny by an independent auditor that confirms whether the Charity’s accounts give a true and fair view of their activities for the year and have been prepared in line with Charities Act and the relevant accounting standards.

A charity is required to have an audit of its annual financial statements if its income exceeds £1,000,000 in the year in question or its gross assets exceed £3.26 million if income is between £250,000 and £1,000,000. If you are involved in a charity whose income is above this threshold for the first time and need assistance with an audit, do not hesitate to contact Dominic Pagan at Perrys Tonbridge Office

Purpose

The purpose of an audit is to confirm that the charity’s financial statements:

• give a true and fair view of the state of the charity’s affairs as at the year end and of its incoming resources and application of resources, for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Charities Act 2011.

Once the audit has been performed an audit report is prepared which concludes on the above matters. This report is filed along with the charity’s annual report and accounts with the Charity Commission.

Auditor

The audit must be carried out by an independent auditor who holds the relevant qualifications to sign audit reports. This is usually a partner in an accountancy firm known as a responsible individual. They must also be independent of the charity, with no close relationships or financial interests that could compromise their objectivity. The Charity Commission provides guidance on the appointment and role of auditors.

Audit process

An audit involves three distinct phases:

• Planning: this includes gaining an understanding of the activities and purpose of the charity and documenting the processes and controls around these activities to understand how they are recorded in the financial records.

• Fieldwork: This involves designing and performing audit tests on income and expenditure transactions in the year as well as the balances included in the charity’s statement of financial position.

• Conclusion and reporting: Finally, all the work performed above will be reviewed and the findings concluded upon. These findings will be discussed with the charity’s management and trustees. If the findings are satisfactory an unmodified audit report will be issued.

Benefits for charities

One of the key benefits of the audit is that it makes a charity’s financial statements more reliable as they have been scrutinised and signed off by someone independent. Furthermore, as an auditor also looks at the systems and controls of a charity as part of their work, they can provide recommendations and improvements for these systems which the charity’s management and trustees may not be aware of. This can greatly help increase the efficiency of the charity.

Conclusion

In conclusion, an audit is a vital process for larger charities, providing an independent scrutiny of their accounts and ensuring transparency and accountability. It can have great benefits as not only does it ensure that the Charity’s accounts give a true and fair view of their activities for the year and have been prepared in line with Charities Act and the relevant accounting standards, it also can provide independent advice on the systems of the charity.

If you are involved in a charity and think you may need an audit, please do not hesitate to contact Dominic Pagan at Perrys Tonbridge Office.