When Do Charities in Scotland Require an Independent Examination or an Audit?

When Do Charities in Scotland Require an Independent Examination or an Audit?

This blog is specifically for charities in Scotland.

If your charity is in England and Wales click here and for charities in Northern Ireland click here.

Understanding OSCR’s Requirements

Charities in Scotland are governed by the Office of the Scottish Charity Regulator (OSCR), which sets out specific requirements for financial reporting. Whether your charity needs an Independent Examination or a more thorough Audit depends on its income, assets, and governing documents. Here’s a comprehensive guide to help trustees navigate these thresholds and legal obligations.

Independent Examination or Audit: What’s the difference?

  • Independent Examination: A simpler review of a charity’s financial records by an independent person, providing limited assurance that the accounts are free from obvious errors or issues.
  • Audit: A more detailed scrutiny of the accounts by a registered auditor. It provides a higher level of assurance to stakeholders and an opinion on the True and Fair View of the accounts.


When Is an Independent Examination Required?

All Scottish charities must have their accounts independently examined or audited. There are no ‘lower’ income threshold (this is different to charities in England and Wales).

Independent Examination is required for:

  • Non-company charities that prepare Receipts & Payments accounts (i.e income under £250,000);
  • Gross income exceeds £250,000 but does not meet the audit thresholds (see below);
  • Accruals accounts have been prepared, regardless of income levels.

The Independent Examiner must:

  • Be independent of the charity.
  • Be suitably qualified if the charity’s income is over £250,000 (e.g., a member of a recognized professional body like ACCA or ICAS), or if accruals accounts have been prepared, regardless of income levels.


When Is an Audit Required?

An audit is mandatory for Scottish charities if:

1. Exceeds the statutory thresholds, which are:

    • Gross income over £500,000, or
    • Gross assets over £3.26 million and gross income over £250,000.

    2. Your governing document or funder agreements mandate an audit, regardless of income levels. Always check your governing document.

      3. Funder agreements stipulate an audit is required – although check they really mean an audit and not just an Independent Examination (many people use the term audit for an external accountant looking at the figures).

        4. Charity Commission intervention: The Commission may require an audit if there are regulatory concerns.

          In these cases, the audit must be conducted by a registered auditor who is regulated under the Companies Act 2006.


          Legal Framework

          The reporting requirements for Scottish charities are set out under:

          1. The Charities and Trustee Investment (Scotland) Act 2005:

            • Specifies when accounts must be independently examined or audited.
            • Requires charities to prepare accounts in accordance with the applicable accounting standards.

            2. The Charities Accounts (Scotland) Regulations 2006 (as amended):

              • Outlines the specific reporting and scrutiny thresholds.
              • Details the requirements for external scrutiny (audit or independent examination).

              3. OSCR Guidance:


                Additional Considerations

                • Group Structures: If your charity operates within a group, the overall financial picture may necessitate an audit.
                • Voluntary Audits: Even if not legally required, some charities opt for an audit to boost transparency and accountability to stakeholders.
                • OSCR’s Role: OSCR has the authority to direct charities to conduct an audit if there are concerns about governance or financial management.


                Practical Tips for Trustees

                1. Understand Your Thresholds: Regularly review your charity’s income and asset levels to determine if an Independent Examination or Audit is needed – don't leave it until after the year end as you may need to appoint a new examiner/auditor.
                2. Plan Ahead: Arrange for external scrutiny well before the accounts are due for submission to OSCR to avoid penalties.
                3. Seek Professional Advice: If you’re unsure about your charity’s reporting obligations, consult a qualified accountant or auditor familiar with Scottish charity law.


                Conclusion

                Complying with OSCR’s financial scrutiny requirements ensures transparency, protects your charity’s reputation, and maintains donor trust. Understanding whether your charity needs an Independent Examination or Audit is a key part of fulfilling your trustee responsibilities.

                With the right support, you can navigate these requirements confidently and focus on achieving your charity’s goals.


                For tailored advice and services for charities, reach out to us! We’re here to help you navigate financial scrutiny and focus on achieving your charitable goals.

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