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When can a charity opt for audit exemption?

Governing document
A charity’s governing document may require an audit to be undertaken notwithstanding the eligibility of the charity for exemption for audit under relevant legislation. For such purpose the governing document needs to be carefully considered and, if necessary, interpreted. The requirements included in a governing document may supplement, but not derogate from, a statutory requirement for an audit.

Charitable companies
Charitable companies are subject to the audit requirements established by Companies Act 2006. For guidance about such requirements see Audit exemption for companies and LLPs.

Even if charitable companies are able to and claim exemption from audit under Companies Act 2006 they will still be subject to the audit requirements applicable to all charities, both incorporated and unincorporated.

General audit requirements vary according to where the charity is registered.

Charities in England and Wales
Charities in England and Wales are regulated by the Charity Commission for England and Wales and are subject to the requirements set by the Charities Act 1993. Under section 43 of the Charities Act 1993 an audit for a financial year is required if the:

• charity’s gross income in that year exceeds £500,000, or
• aggregate value of the charity’s assets, without deducting any liabilities, exceeds £3.26m and its gross income exceeds £250,000.

Charities which are not required to have an audit of their accounts are required to have an independent examination if their gross income exceeds £25,000. In addition for charities with gross income exceeding £250,000 the independent examiner will need to hold a relevant professional qualification.

View the relevant legislation. 
 
Charities in Scotland
Charities in Scotland are regulated by the Office of the Scottish Charity Regulator and are subject to the requirements of the Charities and Trustees Investment Act 2005. Under the Charities Accounts (Scotland) Regulations 2006, as successively amended, an audit for a financial year is required if the:

• charity’s gross income in that year exceeds £500,000, or
• aggregate value of the charity’s assets, without deducting any liabilities, exceeds £2.8m (for accounting periods beginning before 1 April 2011) or £3.26m (for accounting periods beginning after 1 April 2011).

In Scotland charities that are not required to have an audit of their accounts are required to be subject to an independent examination regardless of their level of income. For charities with gross income of £250,000 or more, the independent examiner will need to hold a relevant professional qualification.

View the relevant legislation.  

Charitable incorporated organisations
A charitable incorporated organisation (Scottish charitable incorporated organisation in Scotland) is a new legal form for registered charities that is being introduced by the provisions of the Charities Act 2006 in England and Wales and the Charities and Trustee Investment (Scotland) Act 2005 (as amended).

This new type of charity is a corporate body which is a legal entity having, on the whole, the same status as a natural person. Having separate legal personality means that the entity can enter directly into contracts, incur debts, own property etc. without its charity trustees doing that on its behalf.

Albeit a corporate body, a charitable incorporated organisation is not incorporated under Companies Act 2006 and it is not regulated by Companies House but only by the Charity Commission in England and Wales and by the Office of the Scottish Charity Regulator in Scotland.

In terms of availability of audit exemption and scrutiny of accounts, charitable incorporated organisations and their Scottish equivalent are subject to the same general regulation as other charities, respectively the provisions of the Charities Act 1993 and the Charities Accounts (Scotland) Regulations 2006 outlined above.

Further guidance about charitable incorporated organisations can be found on the Charity Commission’s website and on the Office of the Scottish Charity Regulator’s website.

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