When Does a Charity Need to Be Audited?

Introduction

All charities in England and Wales must keep accurate financial records and prepare annual accounts, but not every charity needs a full audit. The level of external scrutiny required depends on the charity’s income, assets, and legal structure. Understanding these thresholds helps trustees stay compliant with Charity Commission regulations and avoid unnecessary costs.

This article explains when a charity must be audited, what an independent examination is, and how to decide which type of financial review applies to your organisation.

The Purpose of a Charity Audit

A charity audit is an independent check carried out by a registered auditor to confirm that the charity’s financial statements give a true and fair view of its finances. The process ensures accountability, builds public trust, and helps detect errors or irregularities.

While an audit provides a high level of assurance, it is also more detailed and expensive than other types of financial review. For smaller charities, a lighter review known as an independent examination is often sufficient.

The Legal Thresholds for Audits

The requirement for an audit depends on the charity’s annual income and, in some cases, its total assets. The rules differ slightly depending on whether the charity is incorporated or unincorporated.

In general, under the Charities Act 2011, a charity must have its accounts audited if either of the following applies:

• Its gross annual income exceeds £1 million, or

• Its gross annual income is over £250,000 and its gross assets exceed £3.26 million

If your charity falls below these thresholds, it will usually only need an independent examination, unless your governing document or funders specifically require a full audit.

Audits Required by the Charity’s Governing Document or Funders

Even if your charity does not meet the income or asset threshold, you may still need an audit if:

• Your governing document (constitution or articles of association) requires one, or

• A grant provider or major donor makes an audit a condition of funding

Trustees should always review the charity’s governing document before finalising the annual accounts. It is possible to amend the requirement for an audit if it is no longer proportionate to the charity’s size, but this must be approved through the correct governance process.

What Is an Independent Examination?

An independent examination is a less formal review than a full audit, but it still provides assurance that the charity’s accounts are accurate and properly prepared. It involves an independent examiner (often an accountant or financial professional) reviewing the accounts and asking questions about how the records have been kept.

Independent examination is usually required if the charity’s income:

• Exceeds £25,000, but

• Does not exceed £1 million, and

• It does not meet the asset test for a full audit

The examiner must be independent and suitably qualified, particularly if the charity’s income exceeds £250,000, in which case the examiner must be a member of a recognised professional accountancy body such as ACCA, ICAEW, or AAT.

Additional Requirements for Charitable Companies

If your charity is also a limited company, you must comply with both the Charity Commission and Companies House requirements.

A charitable company must have its accounts audited if it exceeds two out of three of the following thresholds:

• Turnover above £10.2 million

• Gross assets above £5.1 million

• More than 50 employees

In practice, most small and medium-sized charities do not meet these figures, so a standard independent examination remains sufficient.

Why Audits and Examinations Matter

Even if your charity does not legally require an audit, having external scrutiny offers clear benefits:

• It strengthens public confidence and donor trust

• It ensures compliance with charity law and accounting standards

• It helps trustees identify risks, inefficiencies, or potential fraud

• It provides reassurance to funders that money is being used correctly

For larger charities, an annual audit can also highlight areas for improvement in governance, controls, and financial systems.

Example Scenario

Imagine a charity called Hope for Families, which supports low-income households. Last year, its income was £600,000 and its total assets were £250,000. Since it falls below both the £1 million audit threshold and the £3.26 million asset threshold, it only needs an independent examination.

However, one of its grant funders requests an audit as a condition of funding. The trustees therefore arrange for a registered auditor to conduct one, even though it is not legally required.

The following year, when income grows to £1.2 million, a full statutory audit becomes mandatory under the Charities Act.

Who Can Perform the Audit

A charity audit must be carried out by a registered auditor holding a recognised qualification under the Companies Act 2006. This ensures the auditor meets professional standards and is independent of the charity’s management.

For an independent examination, the examiner must:

• Have no connection with the charity that could compromise independence

• Possess the necessary financial skills and understanding of charity accounts

• Be a member of a recognised accountancy body if income exceeds £250,000

What Trustees Should Do

Trustees are ultimately responsible for ensuring the charity’s accounts meet legal requirements. They should:

• Check the charity’s income and asset levels each year against the thresholds

• Review the governing document for any audit obligations

• Appoint a qualified auditor or examiner early to avoid delays in filing accounts

• Ensure the accounts and annual return are filed with the Charity Commission on time

For registered charities, accounts must normally be submitted within 10 months of the financial year end.

Common Mistakes to Avoid

• Assuming a small charity does not need any external review at all

• Missing audit deadlines due to late appointment of auditors

• Using an unqualified or connected person as an independent examiner

• Ignoring requirements set by funders or the governing document

Non-compliance can result in delays to grant funding, reputational damage, or regulatory penalties.

How an Accountant Can Help

An accountant experienced in charity finance can:

• Determine whether your charity needs an audit or independent examination

• Prepare compliant accounts and financial statements

• Liaise with auditors or examiners to ensure deadlines are met

• Advise on internal financial controls and governance improvements

Working with a professional helps trustees meet their legal duties and ensures transparency with donors and regulators.

Conclusion

Not every charity needs a full audit, but all must have their accounts checked at the appropriate level. In most cases, charities with income under £1 million only require an independent examination, while larger or more complex organisations must undergo a statutory audit.

Trustees should review income, assets, and funding conditions each year to confirm which rules apply. Seeking advice from an accountant or charity specialist ensures compliance and strengthens financial governance, allowing your charity to focus on delivering its mission with confidence.