Charity Audit Requirements: Compliance for Not-for-Profit Organisations

Charitable organisations and not-for-profit entities face specific audit and reporting requirements that differ from commercial companies, with the Charity Statement of Recommended Practice (SORP) providing comprehensive guidance on financial reporting. For finance directors of charitable organisations, understanding these requirements, ensuring SORP compliance, and managing regulatory obligations are essential for maintaining charitable status and stakeholder confidence.

Charity Audit Thresholds and Requirements

Charitable companies and charitable incorporated organisations (CIOs) are subject to audit requirements based on income and asset thresholds, with different requirements applying in England and Wales, Scotland, and Northern Ireland. Finance directors must understand which requirements apply to their organisation and ensure appropriate audit arrangements are in place.

The audit threshold for charitable companies is generally higher than for commercial companies, with charities with income below certain thresholds potentially being exempt from audit, though independent examination may still be required. Finance directors should confirm their organisation's audit status and ensure compliance with applicable requirements.

SORP Compliance and Financial Reporting

The Charity SORP provides comprehensive guidance on charity financial reporting, including requirements for the statement of financial activities (SOFA), balance sheet presentation, and disclosure of restricted and unrestricted funds. Finance directors must ensure that financial statements comply with SORP requirements and accurately reflect the charity's financial position and activities.

SORP compliance requires understanding of fund accounting, where income and expenditure are allocated to restricted, unrestricted, and endowment funds, and appropriate presentation of these funds in financial statements. Finance directors should ensure that accounting systems support fund accounting and that financial statements accurately reflect fund movements.

Regulatory Reporting and Charity Commission Requirements

Charitable organisations must submit annual returns and accounts to charity regulators, with requirements varying by jurisdiction. Finance directors must ensure timely submission of required information and compliance with regulatory requirements, including disclosure of related party transactions and significant events.

The Charity Commission for England and Wales, Office of the Scottish Charity Regulator, and Charity Commission for Northern Ireland each have specific requirements that finance directors must understand and comply with. Failure to meet regulatory requirements can result in regulatory action and potential loss of charitable status.

Special Considerations for Charities

Charitable organisations face unique considerations in financial reporting and audit, including the need to demonstrate public benefit, manage restricted funds appropriately, and ensure appropriate governance structures. Finance directors should ensure that financial reporting and audit processes address these considerations effectively.