Audit and independent examination for Scottish charities
The Companies Act 2006 has changed audit regulations for Scottish charities. Beth Henderson assesses the effects so far.
Under the Companies Act 2006, Scottish limited company charities with incoming resources of less than £500,000 (and gross assets of £2.8 million or less), are no longer required to have their accounts audited. Instead, they can opt for the less detailed scrutiny of an independent examination. The effect of this is to align the audit requirements for all Scottish charities.
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Scotland's regulatory regime for charities
Just a small but vital clarification of the over-simplified statement that "an audit is required for all charitable companies and companies that are not charities with gross income of £500,000 or more, or gross assets of £2.8 million or more". In the latter case the audit requirement (which is imposed by Regulation 10(1)(b) of SSI 2006/218) applies to all charitable companies claiming company audit exemption no matter how small their gross income, because the Companies Act requires 'fully accrued' accounts in all cases. What is easily missed is that this audit requirement also catches all non-company charities that prepare 'fully accrued' accounts under Regulation 8 - which they must do if the year's gross income has exceeded Scotland's £100,000 accruals accounts threshold - even if they do so below that level of income by not taking up their statutory option to prepare accounts on the receipts & payments basis permitted by Regulation 9. A strange disincentive to SORP compliance?
Or a consequence of the Scottish sector's dependency (45%) on government funding and the statutory funding bodies' well-known insistence on audit reports in preference to the cheaper but quite adequate alternative of a fully compliant independent examination report where the charity is 'small'?