Over the years, the audit profession's response to major corporate failures has been to tighten up the rules of what constitutes an audit, increasing both the financial cost involved and the amount of staff time needed to complete them.
This affects charities, too. Audits tend to be seen as the gold standard of accounting accuracy, but many trustees would welcome the option of a less onerous and time-consuming independent examination of their accounts. In many cases, however, charities' incomes have been too high to allow it. The Charities Act 2006 has changed that by increasing the annual income threshold at which an audit is required to £500,000 (it was previously £250,000).This will come into force for financial years starting on or after 27 February 2008.
The Companies Act 2006 will help further by levelling the playing field between incorporated and unincorporated charities: both types will be permitted to have their accounts independently examined if their annual income is between £10,000 and £500,000. This is expected to be enacted some time in 2008 - an exact date is yet to be announced.
CC63a, the Charity Commission's Independent Examination of Charity Accounts guidance, defines an examination as being "a review of the accounting records kept by the charity and a comparison of the accounts presented with those records". It also involves "the consideration of any unusual items or disclosures identified".
For most trustees, this will fully cover the work they need and will almost certainly be cheaper than a full audit. Although some charities might have to make small changes to their governing documents to allow this to happen, the commission will always approve changes such as this.
- Rosie Chapman is executive director of policy and effectiveness at the commission.