The Institute of Chartered Accountants of Scotland (ICAS) has called on policymakers to remove mandatory audit requirements from smaller charities “as a matter of urgency”.
In an open letter to social justice secretary Shirley-Anne Somerville, ICAS called on the Scottish government to raise the charity audit threshold in the country from those with an income of £500,000 a year.
It warned that at the current threshold there is an increasing risk that some Scottish charities may not be able to secure the services of an auditor for their statutory audit.
‘Fewer auditors available’
Bruce Cartwright, ICAS chief executive, said in the letter: “Increases to the company law audit threshold over many years has caused a fall in the number of accountancy firms being registered to undertake audit work.
“This continuing trend means there are fewer auditors available to take on audits, of not just companies, but other kinds of organisations, such as charities.”
He added that Scottish charities have a significantly lower audit threshold, introduced in the Charities and Trustee Investment (Scotland) Act 2006, than companies.
“A company needs to have turnover of more than £10.2m in a financial year before an audit is required, but a Scottish charity only needs to have gross income of £500,000 or more,” he said.
“The differential between these two thresholds only adds to the current challenges charities can face in finding an auditor.
“While the last significant uplift in the company law audit threshold took place in 2016, regulatory changes to the audit environment have led to a rise in demand for audit skills in a tight labour market and an increase in audit fees.
“The result is a greater risk that some Scottish charities may not be able to find an auditor to do their statutory audit.
“To mitigate this risk, we believe that the Scottish government should review the charity law audit threshold, with a view to raising it as a matter of urgency.”
‘Merit in considering a similar approach to that taken in England and Wales’
ICAS also highlighted its concerns about the sustainability of the current external scrutiny requirements for charities’ financial statements, calling for the independent examination regime for Scottish charities to be strengthened.
The letter reads: “We believe that it will be necessary to strengthen the independent examination regime for Scottish charities by being more prescriptive about the work an independent examiner should undertake.
“There would be merit in considering a similar approach to that taken in England and Wales, whereby charity independent examiners must comply with formal directions issued by the Charity Commission.”
Cartwright said it will also be necessary to strengthen the independent examination regime for Scottish charities by being more prescriptive about the work an independent examiner should undertake.
The letter adds: “Ultimately, we believe that if a significant number of charities are unable to file audited, financial statements where these are required, this will have a negative impact on public trust in the sector.
“Our more immediate concern is the impact on charities and the trustees of those charities who find themselves unable to meet their filing obligations under the 2005 Act and 2006 Regulations.”
This comes following reforms set out in the Charities (Regulation and Administration) Act 2023, which which came into force this month.
Related Articles
