Expert View: Finance and IT: Accounting Thresholds - The proposed change is a risky one

The question of whether accounting thresholds for charities are in the right place has come under the spotlight once again.

In its response to the consultation paper Financial Thresholds in the Charities Acts - Proposals for Change, issued jointly by the Office of the Third Sector and the Charity Commission, the Government suggests that it is happy to loosen the reporting burden to some degree for medium-sized charities.

It is completely understandable that charities should have more than their fair share of compliance issues to deal with. There is, however, a fine balance between accountability and burden.

The Government's decision not to raise the audit threshold from £500,000 to £1m was a good one. It is correct that the threshold should be revisited, but to do so after less than a year - and to propose doubling it - seemed totally unnecessary. So it is with a sigh of relief that we see accountability kept intact.

The proposals also included raising the income threshold above which charities must prepare accruals accounts from £100,000 to £250,000. Surprisingly, the Government backed this proposal. This could bring relief for the 11,000 or so charities that may 'benefit' from the increase, but certainly raises concerns: it is usually smaller charities that are in danger of failing to account fully for all of their income and expenditure.

Larger charities are inevitably used to doing this, and are therefore unlikely to miss out potentially important expenditure from their accounts. I am concerned that the relief of this 'burden' might backfire on smaller charities, which may suddenly find themselves with surplus income that they do not really have because no proper accounting for accruals has taken place.

Ultimately, public confidence in how accountable charities are will suffer, and this could have consequences for the sector as a whole. I am surprised the Government believes "the proposed change would be consistent with other changes made to accounting thresholds and take account of inflation". Only 41 responses were received during the consultation period, and only 21 supported this proposal.

I am all for reducing the burden on charities, but I would devote time and attention to reducing the bureaucracy that surrounds matters such as Gift Aid and VAT partial exemptions before directing attention simply to increasing this threshold and taking smaller, more at-risk charities out of the accountability equation altogether.

  - Reza Motazedi is head of the charity and not-for-profit group at Vantis

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