Does your association, federation or society need an annual audit of its accounts, an independent examination, or no external scrutiny?
The legal position
Private Limited Company – not a charity
Your company may qualify for an audit exemption if it has at least 2 of the following:
- an annual turnover of no more than £10.2 million
- assets worth no more than £5.1 million
- 50 or fewer employees on average
If you do qualify there is a specific audit exemption statement which must be included with your balance sheet. You can see more on the .GOV website here.
Even if your company is exempt from an audit, you must get your accounts audited if shareholders who own at least 10% of shares (by number or value) ask you to. This can be an individual shareholder or a group of shareholders.
Registered charity
According to the .GOV website “the trustees will usually be able to choose an independent examination instead of an audit if your charity’s gross income is:
- more than £25,000, but not more than £1 million, provided that
- if its gross income is more than £250,000, its gross assets (fixed assets plus current assets) are £3.26 million or less”
See more here.
The audit exemption rules are different in Scotland. A handy comparison between the Scottish and England and Wales requirements can be seen here.
Your constitution
If your organisation is a private limited company and even if it meets the requirements for audit exemption detailed above, if your governing document requires an audit then this must be done.
If your organisation is a registered charity the trustees will not be able to choose an independent examination if the charity’s governing document, a funder or the Charity Commission requires an audit to be carried out.
Audit v independent examination
An audit is a much more rigorous process completed in accordance with International Standards on Auditing.
An audit will require financial tests, proof of assets, as well as other evidence so that the auditor may be satisfied that the accounts show a true and fair value.
An independent examination is a simpler process and does not involve scrutiny of internal financial controls and processes. The independent examiner is trying to identify that no evidence has been found that indicates the accounts have not been prepared properly.
This is sometimes referred to as negative assurance whereas an audit is positive assurance that the accounts show a true and fair value.
Audits are typically more expensive that an independent examination.
No scrutiny?
But what if your organisation meets no requirements for any external scrutiny and possibly it is unincorporated so has no public filing requirements either?
If there are no requirements in the constitutional documents then ultimately it is up to the members to decide what level of scrutiny is needed.
We believe all financial statements should be subject to some form of external scrutiny at least on annual basis.
The Charity Commission’s internal financial control checklist is an excellent place to start whether your organisation is a charity or not.
Accounts and auditing at The AMC
The majority of our clients are subject to financial audit and those that aren’t are subject to some form of external scrutiny.
At The AMC we do not employ accountants or auditors but we work with qualified and accredited providers. Many we have inherited when we took on managing a new client as detailed knowledge of financial affairs built up over years, sometimes decades, is invaluable and should only be changed after a thorough review process. Financial accuracy, probity and scrutiny are essential in managing an organisation’s funds and assets. Read more about our finance expertise here.
The information provided above was correct at the time of writing (February 15, 2023) – make sure you check the official links for the current position as things can change.