The Institute of Chartered Accountants in England and Wales (ICAEW) has written to the minister for civil society, Stuart Andrew, to express support for a consultation on the audit threshold for charities in England and Wales.
ICAEW, a professional body supporting over 200,000 chartered accountants and students, understands that the Department for Culture, Media and Sport (DCMS) intends to hold such a consultation.
In the letter, ICAEW’s chief executive, Michael Izza, tells Andrew that the organisation would “like to see this consultation taken forward before the end of this parliament”.
Three reasons
Izza goes on to make three points that mean a consultation is needed.
The first point is that such a move is in line with the Charity Commission’s strategy for 2024-2029, which “highlights the longer-term issues facing the charity sector and the need for proportionate and effective regulation”.
Secondly, Izza says: “The effect of recent inflation is to drag many smaller charities towards current audit thresholds: this is disproportionate, especially at a time when they face other financial pressures.”
The final point concerns pressures on the audit profession which are having a knock-on effect on charities.
“The audit profession is facing increased demands in other sectors (including the audits of public interest entities and local authorities) and the requirements of regulators and standard-setters have grown more exacting in recent years,” the letter states.
“It cannot be assumed that market pressures alone will lead to an increase in the supply of suitably skilled auditors in the charity sector or materially reduced audit costs for charities in the short term.”
Current audit levels
In a supporting supplementary document sent with the letter, ICAEW points out the current thresholds were set after a consultation in 2015 and are:
- Gross annual income exceeding £1m; or
- Gross annual income exceeding £250,000 and year-end aggregate value of assets exceeding £3.26m.
The document adds that while most charities in England and Wales “fall far below” these thresholds, the Commission’s register suggests that some 5,700 charities are in the £1m-£5m band, and are currently required to be audited.
The ICAEW argues that “if the current thresholds were to be increased, for example by inflation on a compounded basis from 2015, a significant percentage of these (several hundred charities at least) would be removed from the requirement to have an audit”.
“While some of these might decide to continue on a voluntary basis, for the others, the resultant reduction in audit fees incurred and time spent in preparing for and participating in an audit would be welcome and the outcome would be more proportionate for the sector,” it says.
The accounts of charities with income between £25,000 and £1m are subject to an independent examination.
This is a “less rigorous” process and “professional fees for performing independent examinations are typically substantially lower than fees for auditing comparable charities”, the supplementary document says.
Izza’s letter to Andrew concludes: “We look forward to engaging with the consultation in due course. We would also welcome the opportunity to discuss more imaginative or radical approaches for reform and ways to simplify and future-proof regulation of this nature.”
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