Charities have a significantly lower audit threshold than companies
Calls for a more detailed review of charity law have been made despite Charities Act 2023 recently gaining royal assent.
The Institute of Chartered Accountants of Scotland (ICAS) argues that the Scottish charity law audit threshold should be reassessed and the independent examination regime for Scottish charities to be strengthened.
The call comes in an open letter addressed to social justice secretary Shirley-Anne Somerville.
ICAS chief executive, J Bruce Cartwright CA, said: “Increases to the company law audit threshold over many years has caused a fall in the number of accountancy firms being registered to undertake audit work. This continuing trend means there are fewer auditors available to take on audits, of not just companies, but other kinds of organisations, such as charities.
“Scottish charities have a significantly lower audit threshold than companies. For example, a company needs to have turnover of more than £10.2 million in a financial year before an audit is required, but a Scottish charity only needs to have gross income of £500,000 or more.
“The differential between these two thresholds only adds to the current challenges charities can face in finding an auditor.”
Cartwright said that while the last uplift in the company law audit threshold took place in 2016, regulatory changes to the audit environment have led to a rise in demand for audit skills in a tight labour market and an increase in audit fees.
He added: “The result is a greater risk that some Scottish charities may not be able to find an auditor to do their statutory audit. To assist with this problem, the Scottish government should urgently review the charity audit threshold.
“We believe that it will also be necessary to strengthen the independent examination regime for Scottish charities by being more prescriptive about the work an independent examiner should undertake.”
The previous Charities and Trustee Investment (Scotland) Act 2005 had remained largely unchanged since it was introduced 18 years ago, while the new act strengthened the law in three key areas: increasing transparency and accountability in charities; making improvements to OSCR’s powers; and bringing Scottish charity legislation up to date and more consistent with some key aspects of charity regulation elsewhere in the UK.