Keith Macpherson tells how charities will be affected by changes to audit threshold and SORP reporting
Scottish charities are on the brink of important regulatory changes that promise both relief and new responsibilities.
The Scottish Government has announced that the charity audit income threshold will rise from £500,000 to £1 million, as part of the revised Charities Accounts (Scotland) Regulations in autumn 2025. This is the first change to the threshold in 20 years and it will have a real impact—especially for charities operating in the £500k to £1m income bracket.
The main benefit is that many charities will no longer be required to undertake costly statutory audits. Instead, they can opt for independent examinations, which are less intensive and more affordable. That frees up time and money for what matters most - direct service delivery and community impact.
However, with this opportunity comes responsibility. Trustees must ensure that their governing documents don’t include clauses requiring audits regardless of regulatory thresholds. They’ll also need to check with major funders, some of whom may still expect audited financials. Switching to an independent examination also means choosing a suitably qualified examiner - something the Office of the Scottish Charity Regulator (OSCR) offers guidance on.
Beyond the audit changes, charities also need to be aware of major revisions proposed in the latest draft of the Statement of Recommended Practice (SORP), which is currently out for consultation until 20 June 2025.
Key SORP updates to know
One of the most substantial changes appears in Module 5, which governs income recognition. It’s been significantly restructured, splitting income into two categories: exchange transactions (where goods or services are provided in return) and non-exchange transactions (like grants or donations). The old standard’s "entitlement, probability, and measurement" test is now applied only where relevant. While many charities won’t see a major change in how or when they recognise income, others may need to adjust.
Two new modules - 10A and 10B - are also notable. Module 10A covers provisions, contingent liabilities, and contingent assets. Module 10B focuses on lease accounting and is particularly significant, stretching over 25 pages. Even though the SORP is still in draft form, charities should be reviewing their lease agreements now. Those benefiting from below-market rent due to their charitable status will need to pay particular attention to how the accounting changes affect their reported finances.
In Module 1, covering the Trustees’ Annual Report, a new three-tier classification system has been introduced: Tier 1: income under £500k; Tier 2: income under £15m; and Tier 3: income over £15m.
This structure reflects the varying capacity and complexity of charities and helps align reporting expectations. For larger charities, particularly those in Tier 3, new requirements on sustainability reporting are on the table. Even Tier 1 and Tier 2 charities will need to consider how they report on the impact they deliver, volunteer involvement and reserves management.
Get involved in the consultation
The SORP consultation - open until 20 June - includes 40 questions and invites feedback on the clarity and proportionality of the proposed changes. It’s a valuable opportunity for trustees to shape the rules they’ll soon be following. Given that most charities in Scotland fall into Tier 1, it’s especially important that your voices are heard to ensure the final SORP reflects your realities.
Keith Macpherson is an audit partner at Henderson Loggie, specialising in the charity sector.
