Plans to raise audit threshold level garners support from sector bodies

A government consultation begun in December proposed raising the assets threshold from £500,000 to £1m

Accounting: plans to raise threshold
Accounting: plans to raise threshold

Government plans to raise the audit threshold for charities in England and Wales, removing the obligation from up to 4,000 charities to get their accounts audited, have gained support from the sector.

In December, the Cabinet Office opened a consultation on plans to raise the level of annual income above which charities, and parent charities in group structures, have to have their accounts audited by a statutory auditor from £500,000 to £1m.

A joint response by the Charity Finance Group and the National Council for Voluntary Organisations, and individual responses from both the local infrastructure body Navca and the accountancy firm Baker Tilly, all support the planned asset threshold rise.

Nick Sladden, head of charities at Baker Tilly, says in his response: "The demands of the International Standards on Auditing and the intricacies of charity accounting mean that the cost of an audit of a charity with income between £500,000 and £1m is disproportionally high relative to its income."

The CFG/NCVO response says that although audit "plays a vital role in relation to public and stakeholder confidence", these benefits "do need to be balanced against the costs involved".

Despite Navca’s support for this change, a spokesman for the local infrastructure umbrella body told Third Sector it would not make as much difference as suggested.

"Many charities will continue to have a full audit because funders often require it," he said. "I wonder why we are consulted on such a small change when so many policy decisions that have a huge impact on charities go through with no consultation."

Under the proposals, charities with assets of more than £3.26m would have to have their accounts audited if their annual income exceeded £500,000, up from the existing level of £250,000.

The three responses agree that the £3.26m assets threshold should, for the foreseeable future, remain at the same level. Sladden says that the income threshold for charities with more than £3.26m of assets should rise to £500,000. Navca does not comment on this, while the CFG/NCVO response says that the threshold of £250,000 should not increase, because charities with unaudited accounts would not have their assets verified in the same way.

The consultation also asked whether the list of groups of people able to carry out independent examinations of the accounts of smaller charities – a simpler and cheaper alternative to audits – should be expanded. The CFG and the NCVO suggest that members of the Association of International Accountants could be added. Sladden does not support any addition to the list, saying there is already a sufficient choice and a sufficient capacity on the existing list.

The Cabinet Office’s proposals were originally contained in the review of the Charities Act 2006 by the Conservative peer Lord Hodgson of Astley Abbotts.

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