Charity Accounts & Audit for Charity Organizations

What are the requirements for all charities?

All charities must keep accounting records, and prepare annual accounts which must be made available to the public on request.

In more detail 

All charities must: 

• keep accounting records - these records for example cash books, invoices, receipts, Gift Aid records etc must be retained for at least 6 years (or at least 3 years in the case of charitable companies); where Gift Aid payments are received records will need to be maintained for 6 years with details of any substantial donors and to identify ‘tainted charity donations’ in accordance with HMRC guidance 

• make the accounts available to the public on request; this is important for public accountability, and must be complied with in all cases – you can charge to cover your costs 

• make the annual report available to the public on request, but only if you are required to prepare one

All registered charities (and not exempt or excepted charities) must: 

• prepare an annual report and make it availab; to the public on request All registered charities will be contacted by the commission, shortly after the end of their financial year, and are required, depending on their income, to complete either a full annual return or to complete the relevant sections to update their details. All CIOs and all other registered charities with a gross income exceeding £10,000 are under a legal duty to complete and return the online annual return form to the commission.

Independent Examinations for Charities 

Charities with a gross income of more than £25,000 in their financial year are required to have their accounts independently examined.

An independent examination is needed if gross income is between £25,000 and £1 million.

Independent Audit for Charities

Charity audit is needed where the gross income exceeds £1 million. An audit will also be needed if total assets (before liabilities) exceed £3.26 million, and the charity’s gross income is more than £250,000.

How do I prepare the accounts? 

A charity can prepare either receipts and payments accounts or the accruals accounts but some charities have no option but to prepare accruals accounts. 

Charities must prepare either receipts and payments accounts or accruals accounts. Which of these is needed will depend on the income of the charity and whether or not the charity is a company. 

Receipts and payments account

This is the simpler of the 2 methods and may be adopted where a non-company charity has a gross income of £250,000 or less during the financial year. It consists of an account summarising all money received and paid out by the charity in the year in question, and a statement giving details of its assets and liabilities at the end of the year. A charitable company cannot under company law prepare its accounts on this basis. 

Accruals account

Non-company charities with gross income of over £250,000 during the year, and all charitable companies must prepare accruals accounts that comply with the applicable SORP. Accruals accounts contain a balance sheet showing the charity’s financial position at the end of the year, a statement of financial activities (SoFA) and explanatory notes. The SoFA should show all income and expenditure during the year (and for company charities only, an income and expenditure account, except where the SoFA incorporates the income and expenditure account). These accounts are required, in accountancy terms, to show a ‘true and fair view’. For non-company charities, the commission provides packs for receipts and payments or accruals accounting which are available through GOV.UK. These provide a template, for smaller non-company charities, to produce accounts in the required form and to meet the requirements of the law and the applicable SORP’s recommendations.

For more information for charity accounts, independent examination or audit, please email us or call.