If you’re a charity trustee, you need to know about independent examination and audit requirements. Your accounts need some form of external scrutiny, but whether that means a full audit or an independent examination depends on your income, legal structure, and what your funders or governing document require.
Here’s a clear breakdown of the differences between an audit and independent examination, the charity audit thresholds, and how to decide which option is right for your organisation.
What is the difference between an independent examination and an audit?
An independent examination is a lighter form of scrutiny. An independent person reviews the charity’s accounts, checks they’ve been properly prepared under the Charities SORP accounting framework, and confirms that proper accounting records have been kept. The examination provides a lower level of assurance than an audit, but it’s proportionate for smaller charities.
A charity audit is more thorough. The auditor samples transactions, tests controls, and forms a professional opinion on the accounts. It follows International Standards on Auditing (ISAs), the same framework used for statutory audit of companies. The independent assurance it delivers is significantly stronger.
In practical terms: an independent examination asks “do these accounts look reasonable and are they accurate?” while an audit asks “are these accounts materially correct?” Many smaller charities opt for an examination because it suits their size. The choice between an audit or independent examination comes down to what level of assurance your stakeholders need.
When does a charity need an audit?
Under the Charities Act 2011, a charity registered in England and Wales needs a full audit if:
- Its gross income exceeds 1 million in the financial year, or
- Its gross assets exceed 3.26 million AND gross income exceeds 250,000
These are the thresholds set by the Charity Commission for England and Wales. Charitable companies face separate thresholds under the Companies Act 2006. Some charities sit below the threshold but still require an audit because their governing document says so, or because a major funder insists on audited accounts. An audit is required whenever the constitution demands it. Charities registered in Northern Ireland have different rules – check the commission guidance for your jurisdiction.
When is an independent examination enough?
If your charity has income below the audit threshold, you’ll usually need an independent examination instead of an audit. For charities with income between 25,000 and 1 million, this is the standard requirement.
Small charities with income under 25,000 don’t need any external review. They can prepare simple receipts and payments or accruals accounts and submit directly. But even small charities sometimes choose to have an independent examiner review their accounts because it builds donor confidence.
Who can carry out independent examinations and audits?
An audit must be carried out by a registered auditor with charity experience, holding the qualification and registered with ICAEW or ACCA. Charity auditors follow ISA standards and need knowledge of charity law and SORP.
An independent examination must be carried out by an independent person who is suitably qualified. For charities above 250,000 income, examiners must be a member of ICAEW, ACCA, or equivalent. The Association of Charity Independent Examiners also provides training. Below 250,000, the examiner can be anyone the trustees believe competent, though appointing an accountant is still good practice. Either way, the examiner must be independent of the charity.
What does each cost?
An examination is much less expensive because the audit work involved is less. For a straightforward charity, an examination may cost 1,000 to 3,000. An audit for a similar organisation would cost 3,000 to 8,000 depending on complexity.
The price reflects depth. The auditor needs to plan the engagement, test transactions, confirm whether the accounts present a true and fair view, and issue a formal audit report. An independent examiner can complete the review of the charity’s accounts more quickly because the level of assurance is lower.
Is an audit or an independent examination better?
Not necessarily one or the other. An audit provides stronger independent assurance that the charity’s money has been properly accounted for. But an independent examination of charity accounts is perfectly adequate for most charities below the threshold. Charity Commission guidance makes this clear.
Trustees should consider what stakeholders need. If nobody is asking for audited accounts and your charity has an income below the threshold, an examination does the job. But if you handle significant public funds or seek large grants, the deeper audit process gives stakeholders greater confidence.
We provide both audit and examination services for charities across Manchester and the UK. Our accountancy team has deep experience with charity accounts and the SORP framework. If you’re unsure which your charity needs, call us on 0161 832 4451 or request a callback. Every trustee has a responsibility to get this right.
