Charities Encouraged to Continue Annual Audits Despite New Rules

Changes to audit requirements prompt charities to consider benefits of continued auditing

New regulations affecting the audit requirements for charities in England and Wales have come into effect for financial years ending on or after 30 September 2026. These changes raise the gross annual income threshold for mandatory audits from £1 million to £1.5 million. However, many charities are choosing to continue with annual audits to maintain transparency and confidence among stakeholders, according to experts from Saffery, an audit, accountancy and business advisory firm based in Leeds.

Updated audit thresholds

The new rules specify that an audit is required if a charity’s gross income exceeds £1.5 million. Additionally, an audit must be conducted if gross income exceeds £500,000 and gross assets are over £5 million. These thresholds have increased from the previous limits of £1 million, £250,000, and £3.26 million respectively. The government estimates that these changes will exempt approximately 2,000 charities from mandatory audits.

Reasons charities continue audits

Kathryn Belton, a director at Saffery specialising in the charities and not-for-profit sector, explained that many smaller charities will benefit from reduced administrative burdens. However, a significant number are opting to maintain audits due to the wider benefits, including:

• Providing assurance and confidence to funders, donors, trustees, staff, and other stakeholders
• Demonstrating good governance and financial robustness
• Supporting compliance with accounting standards and reporting frameworks

Audit preparation advice

Belton emphasised the importance of thorough preparation to ensure audits proceed smoothly. Key recommendations include:

• Maintaining accurate, comprehensive, and up-to-date documentation
• Keeping clear records of all income sources, including donations, legacy income, trading, and rental income
• Retaining correspondence related to legacy income, such as communications from executors and solicitors, and documenting the assessment of when the charity became entitled to the legacy
• Raising any accounting uncertainties with the audit team early in the process
• Monitoring restricted and designated funds carefully, with designated funds formally agreed and documented in trustee meeting minutes before year-end

Governance and communication during audits

While audits focus primarily on financial reporting, charities are advised to regularly review whether their activities align with their charitable objectives, especially when introducing or changing activities. Effective communication with the audit team is also crucial. This includes agreeing on the timing of fieldwork and meetings, ensuring finance staff availability, and responding promptly to information requests.

Belton also encouraged trustees to take an active role in the audit process by attending planning or closing meetings where appropriate. She highlighted the importance of starting the trustees’ report soon after year-end to allow adequate time for review and compliance with accounting frameworks and the Charities Statement of Recommended Practice (SORP).

Ultimately, better preparation, good record-keeping, accurate financial reporting, early communication, and trustee involvement contribute to a smoother and more beneficial year-end audit experience for charities.

Source: Doing Good Leeds