The Association of Chartered Certified Accountants (ACCA) has called for the Scottish Government to increase the threshold at which charities have to complete an audit “to relieve time and cost pressure on hard-pressed charities.”
Currently, charities in Scotland with an annual income over £500,000 are required to complete an audit, while the threshold is £1 million in England and Wales. The income threshold has not been updated since the 2005 legislation was introduced in Scotland.
“Publicly available data analysed by ACCA experts, covering a sample of around 50 charities, showed that for those with a turnover under £1 million who were subject to audit, the cost of the fee as a percentage of their annual income was on average 0.8%,” said ACCA.
“This is compared to 0.4% for charities with an income over £1 million.”
ACCA, whose members provide audit and accounting services to charities across Scotland, highlighted some of the problems facing charities requiring an audit, with smaller charities paying proportionately more for an audit compared to larger charities.
“A decline in audit firm numbers, combined with the complexity of audit and the lower threshold bracket for charity audits in Scotland compared to England and Wales, can result in higher fees and make it harder for smaller charities to find an auditor,” said ACCA.
“Responding to a Scottish Government consultation seeking views on the need for a review of charity regulation, including whether the current audit threshold needs to be raised, ACCA analysis of publicly available data shows that audit fees paid by smaller charities – who could be taken out of the audit bracket were the threshold to be increased – are proportionately higher than those for larger charities.
“These findings came on top of feedback from ACCA members across Scotland that some charities were struggling to find an audit supplier.”
ACCA Strategic Engagement Lead for Scotland, Susan Love, said: ‘While the public rightly expects high standards of governance and transparency, we have an opportunity to relieve some cost pressure from those charities currently subject to the rigour of the audit process.
‘While these charities would still be subject to external scrutiny of their accounts via the Independent Examination process, a larger pool of professionally qualified accountants can provide this service, in comparison to an audit, where processes can take a lengthy period of time and specialist talent is required.
‘Better and more up-to-date regulations will not only ease the burden on small grassroots charities, but it will ensure that their hard-earned fundraising will continue to go to the causes that need it most, freeing up time and money for charities to do their incredible work.”
Kirsten Hogg, Head of Policy and Research at SCVO (Scottish Council for Voluntary Organisations) said: “Over the last few years we have increasingly heard from charities facing difficulty in accessing audit, due to a combination of rising costs and a decrease in firms offering charity audit services.
“At a time when charities are facing considerable financial challenges, and a lack of resources sees staff and volunteers under considerable pressure, these difficulties present a significant challenge.
“We welcome ACCA’s support for a review to better understand these issues, and to develop sensible solutions that work for both charities and the accountancy industry, while ensuring that charities continue to meet appropriately high standards of governance and regulation.”