The Charity Finance Group (CFG) and Association of Chartered Certified Accountants (ACCA) have both voiced support for raising the charity audit threshold in line with inflation.
In response to the Department for Culture, Media and Sport’s (DCMS) consultation on financial thresholds in charity law, CFG and ACCA said the gross annual income threshold over which a full audit is required should rise from £1m to £1.5m.
CFG argued that doing so could help address the “significant increase in the cost of audit and the increased difficulty in finding an auditor”.
The membership body is also calling on the government to consider introducing additional checks to independent examination requirements, “but less than those of a full audit”.
ACCA also expressed support for raising the charity audit threshold in line with inflation, following a recent increase in the audit threshold for small private companies.
Meanwhile, CFG also expressed concern about the fragmented approach to charity regulation reform, arguing that the thresholds review should have been coordinated with the ongoing SORP consultation.
CFG: Smaller charities face ‘disproportionate’ burden
CFG surveyed 69 charities on the proposals, most of whom agreed that the financial thresholds should rise in line with inflation.
Nearly seven in 10 supported raising the audit threshold to £1.5m to save charities time and money, at a time when smaller charities face increased audit costs.
“The amount of data which smaller charities have to provide for an audit is disproportionate to their size, with the audit requirements of a £1m charity being the same as one with a £100m charity,” CFG’s response reads.
CFG commented that “it’s apparent that audit firms are struggling to recruit and retain staff” and that “larger non-charity specialist firms aren’t interested in smaller charities as clients”, with only one in five respondents reporting no difficulties in finding an auditor.
Most charities surveyed reported that the cost of their audit had increased, which CFG said could be due to difficulties finding an audit firm.
Around three-quarters of respondents supported raising the lower threshold over which charity accounts must be examined by an independent examiner in line with inflation from £25,000 to £40,000.
CFG said: “As inflation has risen significantly in the last few years, more and more smaller charities are captured by the requirements to get an independent examination.
“If this threshold doesn’t increase by inflation, in essence, the administrative and regulatory burden for some of the smallest charities has increased, at a time when they can ill afford it.”
ACCA: ‘Current thresholds are outdated’
Likewise, ACCA recommended that the gross annual income threshold for auditing be raised to £1.5m.
The accountancy body also expressed a preference for five-yearly reviews of the thresholds instead of once a decade in its response.
ACCA called on DCMS to “balance the proportionality that having thresholds offers, with the issue of complexity in having many different thresholds”.
It said the current thresholds are “outdated and no longer reflective of the current economic environment and operational context of the charity sector”.
ACCA also called for greater collaboration between the UK jurisdictions to enable the sharing of good practices and experiences in the charity sector.
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