ACCA calls on UK Government to ease charities’ financial burden by reviewing audit thresholds

• The response calls for an increase in the audit threshold in England and Wales, following a proposed increase to the audit threshold in Scotland
• Accountancy body calls for a structured, periodic review cycle of financial thresholds to ensure greatest possible alignment with accounting standards and sector changes. At least every 10 years should be the minimum requirement, with a preference for five-yearly reviews.

The government should commit to reviewing financial thresholds for charities at least every ten years, says ACCA (the Association of Chartered Certified Accountants).

In response to a consultation by the Department for Culture, Media and Sport (DCMS), ACCA is calling for DCMS to balance the proportionality that having thresholds offers, with the issue of complexity in having many different thresholds; where possible a threshold should be common to more than one matter.

This consultation covers the thresholds that determine when a charity must register, submit an annual report, file accounts, and undertake an independent examination or audit.

The current thresholds, which have remained unchanged since 2015, are considered outdated and no longer reflective of the current economic environment and operational context of the charity sector.

In Scotland, charities with an income over £500,000 were required to undergo an audit, but following a consultation conducted by the Scottish Government, this threshold is now proposed to increase to £1m. In England and Wales, the threshold is £1m, and ACCA is calling for this amount to rise to £1.5m.

This discrepancy means smaller Scottish charities spend an average of 0.8% of their income on audit, compared to 0.4% for larger charities.

Glenn Collins, head of technical and strategic engagement, ACCA, said: “It is important that financial thresholds are proportionate for smaller charities. A periodic, systematic review is essential to ensure the regulatory environment evolves with the sector. Our recommendations aim to balance accountability and fairness, freeing up vital resources to function.”

ACCA is also advocating for a more coherent UK approach to setting charity law financial thresholds, suggesting that DCMS engage in ongoing dialogue with the other UK jurisdictions of Northern Ireland and Scotland. This collaboration would allow for the sharing of good practices and experiences in the charity sector.

The body recommends the gross annual income threshold for auditing be raised to £1.5 million in line with inflation, rather than stick at the current threshold of £1 million.

Joe Fitzsimons, regional lead, policy and insights, ACCA, added: “In view of the significant increase in the audit threshold for small companies, it is appropriate to consider doing the same for charities. This is not simply about the effect of inflation, but recognising that the threshold is set in the context of the distribution of income across the charity sector.

“There is evidence that the availability of auditors is proving a challenge to trustees and increasing the threshold for audit would be a pragmatic step to easing this situation.

“Our members serve in the charity sector as trustees, act as auditors, as independent examiners and professional advisers on accounting and charity governance related matters. Our response is framed with the contribution of our members and the importance of the charity sector to civic society in mind.”