In July 2012, Lord Hodgson issued a report on the Charities Act 2006 which included a number of recommendations for charities in England and Wales. One of these was to increase the audit exemption threshold. Further to this report, two statutory instruments have been laid before Parliament and are effective in England and Wales for financial years ending on or after 31 March 2015.
For financial years ending on or after 31 March 2015:
• the audit exemption ‘income test’ threshold is increased from £500,000 to £1,000,000
• there are no changes made to the ‘asset test’, i.e. the asset limit of £3,260,000 and the income limit of £250,000.
Another change included within the statutory instruments is an increase in the income limits for group audit exemption and for the preparation of consolidated accounts from £500,000 to £1,000,000
Note that if the charity is a company it must also qualify as a small company under company law to claim audit exemption.
Charities which are now audit exempt will fall under the independent examination regime. This is a simpler process but there is less depth to the work performed. Many charities not required to have an audit still choose to do so as a means of providing additional assurance to the various people and institutions involved with the charity.
These changes are to charity law in England and Wales. If a charity is deemed to be cross border and is registered not only in England and Wales but also in another jurisdiction such as Scotland, then the charity will need to consider Scottish charity law as well. The audit exemption limits for charities in Scotland are not expected to change in the near future and broadly speaking use the same limits as English and Welsh charities for financial years ending before 31 March 2015.
These changes do not affect Northern Ireland. If you want any advice on the effect to you of the changes and the relative merits of an audit or independent examination, please do get in touch.