Wylie & Bisset have backed calls from the Institute of Chartered Accountants of Scotland.
An accountant and business advisory firm has called for Scotland’s charity audit threshold to be doubled and brought in line with England and Wales.
Wylie & Bisset have backed calls from the Institute of Chartered Accountants of Scotland (ICAS) to raise the charity audit threshold from those with an income of £500,000 a year.
They warned that, at the current threshold, there is an increasing risk some Scottish charities may not be able to secure the services of an auditor for their statutory audit.
Fewer auditors are currently available to take on audits as a result of increases to the company law audit threshold, with a drop in registrations.
ICAS said this advice must be heeded as a “matter of urgency”, with a number of charities finding it difficult to source auditors.
Experts have now said Scottish charities operating within the audit regime should monitor income levels throughout the year to measure any risk of breaching the audit threshold.
Rory McCall, associate director, audit at Wylie & Bisset, told Scottish Business News: “There are more and more charities breaching the audit threshold naturally as their income levels rise over time due to inflationary factors, Covid-related funding and other causes, and it is now time for the government to consider raising the audit threshold.
“At £1 million, the audit threshold in England and Wales is double what it is in Scotland, and I don’t see why Scotland should deviate significantly from that threshold.
“Given the number of charities in Scotland struggling to find auditors, it is now time to consider increasing the threshold and bringing it into line with what we see in England and Wales.
“It’s much easier for a charity to find an auditor if it has plenty of advance warning rather than passing the year end before realising that it has breached the audit threshold, so planning ahead is key.”
I agree with the case for raising the charity audit threshold in Scotland to £1M income, but the article omits the crucial point that charities below the audit threshold are still required to have an independent examination (IE) of their accounts. For the vast majority of funders and other users of charity accounts, an IE would be perfectly sufficient up to £1M income - as is allowed in England and Wales.
The IE process is not some informal or ad hoc process - the requirements for an IE are laid down in detail in the Charities Accounts (Scotland) Regulation 2006 (and there is further guidance from OSCR). There are seven separate issues that an IE must consider before issuing his/her report and the IE has a statutory right of access to all relevant information from the charity, and to proper answers to queries raised. If an IE doesn't get proper answers this must be mentioned in the report.
Moreover, all charities over £250,000 income must prepare their accounts on an accruals basis following the Charities SORP, and in that case the person acting as IE must be professionally qualified. So, if the charity audit threshold is raised from £500,000 to £1M, all the charities in that band will still require as a minimum a professionally-qualified IE report on their accounts.
In most cases, firms of accountants specialising in charities can give much better value for money if they are engaged to perform an IE rather than an audit. In E&W when this change was implemented from 2015 the Cabinet Office reported that charities in the £500K to £1M band would save around £2,250 each by opting for IE rather than audit - money that could then be spent on their services (and the difference would be rather more today).
The threshold can be changed by an Order of the Scottish Ministers to amend the 2006 Regulations - it does need new legislation. I am confident that OSCR would agree with these arguments, and I do hope this change to the Scottish charity audit threshold can made without further delay.