Less than a quarter of auditors who identified matters of material significance in charity audit reports alerted the Charity Commission, according to a review by the regulator.
The commission found that, in the six months to October 2017, of the 114 auditors who submitted audits of charities containing information they were required to flag with the commission, only 28 did so.
The commission said in statement that the discovery raised "significant concern" about how well auditors were carrying out their duties to report and that it was working to raise awareness in the accountancy profession.
The regulator ran the review after new rules came into force in May, adding new reportable issues to the list of matters of material significance, which already included evidence of dishonesty or fraud, loss of funds, money laundering, and criminal activity and terrorism.
Under the new rules, if an auditor has concerns about a charity’s accounts, such as doubts about whether it can remain solvent, and issues a modified audit opinion report, or has concerns that conflicts of interest have not been properly managed or declared, this must be reported to the commission.
The rules were changed after the collapse of Kids Company in 2015 and are designed to help the regulator intervene if a charity’s future is threatened by financial difficulty.
Of the 28 auditors who made a required report to the commission, only six did so within one day of signing the audit opinion and three waited more than two months to alert the regulator.
Michelle Russell, director of investigations and enforcement at the commission, said auditors’ understanding of the commission’s requirement was important for transparency and effective regulation.
"This review shows that, at this time, too few auditors are complying with their statutory duty to report matters of material significance to us as soon as they identify them," she said.
"This potentially puts charities at risk."
The Association of Chartered Certified Accountants welcomed the review and said it would work with the commission on the findings.