Recently, we have had a couple of enquiries from charitable organisations wanting to discuss their audit requirements, which got us thinking about what it is that charities can take away from the audit process.
An important point to cover first, is the difference between an audit and an independent examination.
Charities with income exceeding £1m must have their accounts audited, whilst those with income below this but exceeding £25,000 must have their accounts looked at and reported on by an external party – either by way of an audit or an independent examination.
It may also be the case that, no matter your income or any existing legislative thresholds, your charity’s statute requires an examination.
The main difference between the two is the assertion that is ultimately delivered by the external party; an auditor’s statement will be an ‘opinion’ on the accuracy of the financial statements and whether the accounts have been prepared in line with relevant law, whereas an examiner reports on whether the accounts reflect the underlying records based on their inspection.
It’s worth bearing in mind that auditing must only be undertaken by a qualified accountant who has been approved by a regulatory body, and charities undoubtedly stand to benefit from engaging with professionals who have prior charity experience.
What are the benefits to a charity of an audit?
- Make decisions with confidence
An external audit of your charity’s financial statements and overall financial position can enable you to make decisions about your organisations finances, with confidence.
- Influence how stakeholders and donors perceive your organisation
Audited financial statements can positively influence how existing stakeholders, as well as potential funders and donors perceive your organisation.Where the Third Sector is concerned, transparency is of paramount importance and public trust, for example, relies heavily upon charities being open and honest about what funds they have, and how these funds are being utilised.Consequently, even if your charity is not legally required to have an audit, you may still choose to have one carried out to illustrate your commitment to being transparent and accountable.
- Evaluate your systems and controls
An audit of your charity’s accounts presents the perfect opportunity for management and trustees to participate in the evaluation of existing systems and controls. Consider the following:
- Are there particular areas of weakness that are leaving you open to risk?
- Have you recently implemented new systems or controls that seem to be working well for you, that you would like to retain?
- Are there specific improvements that could be made, that would positively affect your financial position and outlook?
- Protect against fraudulent activity
Many of the less favourable headlines we read about charities and the not-for-profit sector involve instances of fraud. Fraud and financial crime can be devastating for charities, particularly those who, for whatever reason, lack the resources to protect against it.Audit and independent examination can put you on the path to prevention; as aforementioned, reviewing controls and making improvements can help you to safeguard your organisation against such losses and mitigate the chances of your organisation being newsworthy for the wrong reasons.
What can you expect from a charity audit?
Charities can prepare for an audit by ensuring all relevant documentation is accurate, up to date and made available, as per the scope of the audit agreed with the external party, and that those whose involvement is required internally have been briefed accordingly.
You should agree a timeframe with your auditor, which will also help you to ensure that the right paperwork is provided at the right time.
We keep you informed throughout the process and the audit reports that we deliver are designed to give credibility to your finances, assurance to your stakeholders and to help you improve your business by ensuring that your internal controls and systems operate effectively and efficiently.
You can read more about the audit process more generally, by clicking here.
How can George Hay help?
Whether your charity needs an audit or an independent examiner’s report, you can rest assured that we have the experience to deliver.
For more information or to discuss your charities requirements with one of our experts, please contact us.