Charity audits sit at the meeting point between financial reporting, governance and public trust. For trustees, chief executives and finance teams, the process is not simply an annual inspection of the accounts. It is an independent assessment of whether the financial statements give a true and fair view, whether the evidence behind them is reliable and whether important risks have been considered properly.
The most efficient audits normally begin well before the auditor starts fieldwork. Records are reconciled, responsibilities are clear, important judgements have been documented and trustees have had time to review the annual report. When preparation is left until the final weeks, routine questions can become delays, staff are pulled away from their normal work and the risk of late filing increases.
This charity audit guide explains when an audit may be required, how it differs from an independent examination, what auditors are likely to review and how trustees can prepare. It also includes a detailed charity audit checklist that can be adapted to the organisation’s size, structure, activities and reporting framework. It is written mainly for charities registered in England and Wales, with jurisdictional points for charities operating elsewhere in the UK.
Millet Audit specialises in audit, assurance and independent examination work. The purpose of this guide is to help charity leaders understand the process and arrive at the audit with better records, clearer evidence and fewer unresolved issues.
What Is a Charity Audit?
A charity audit is an independent examination of a charity’s annual financial statements performed by a registered statutory auditor. The auditor plans and carries out procedures to obtain reasonable assurance that the accounts are free from material misstatement, whether caused by error or fraud. The final audit report expresses an opinion on the financial statements. It does not guarantee that every transaction is correct, nor does it remove responsibility from the trustees.
The phrase “reasonable assurance” matters. An audit uses risk assessment, professional judgement, sampling, analytical review, testing and corroborating evidence. Auditors concentrate on matters that could reasonably influence the decisions of somebody using the accounts. They do not perform every control or inspect every invoice. The scope is broader and the level of assurance is higher than an independent examination.
For a charity, the audit also reflects features that are less common in an ordinary commercial company. These may include restricted and endowment funds, grant conditions, donated goods and services, public benefit reporting, legacies, fundraising income, overseas activities, trading subsidiaries and trustee remuneration or expenses. An auditor therefore needs to understand both the applicable financial reporting framework and the legal and governance environment in which the charity operates.
Trustees who need a service overview can read about Millet Audit’s dedicated charity audit services. Charities and other mission-led bodies with different legal forms may also find the firm’s not-for-profit audit experience relevant.
Does Your Charity Need an Audit?
The answer depends on more than annual income. Trustees should check the law for the charity’s jurisdiction, its legal form, its gross income and assets, any group structure, the governing document and the terms imposed by funders or lenders. A charity can be below the statutory threshold and still require an audit because its constitution, trust deed, articles, funding agreement or another regulator demands one.
For charities registered in England and Wales, important threshold changes apply to financial years ending on or after 30 September 2026. The Charity Commission’s guidance on changes to charity accounting and reporting confirms the effective date and the revised figures.
Financial Years Ending Before 30 September 2026
Under the rules applying before the change, a full charity audit is generally required where gross annual income exceeds £1 million. An audit is also generally required where gross assets exceed £3.26 million and gross income exceeds £250,000. Group accounts have their own requirements, and the position can be affected by the charity’s structure or governing document.
Financial Years Ending on or After 30 September 2026
For relevant charities in England and Wales, the main income threshold for a statutory audit rises to more than £1.5 million. The asset test changes so that an audit is generally required where gross assets exceed £5 million and gross income exceeds £500,000. The group accounts threshold also rises, with group accounts generally required to be prepared and audited when aggregate group income exceeds £1.5 million.
The lower threshold for mandatory independent examination increases from gross income over £25,000 to gross income over £40,000. The level above which an independent examiner must be professionally qualified rises from £250,000 to £500,000. Millet Audit has a separate summary of the new charity audit and accounting thresholds, which trustees can use alongside current regulator guidance.
These figures should be treated as a starting point, not a substitute for checking the charity’s exact circumstances. A charitable company may also have Companies Act obligations. An exempt charity may have a principal regulator. A parent charity may need consolidated accounts. A funder may require an audit at a much lower level of income. The governing document may use the word “audit” in a way that needs careful interpretation, particularly if it is old.
Scotland and Northern Ireland
Charity law is not identical across the UK. Scottish charities are regulated by OSCR and are subject to Scottish accounting and external scrutiny rules. For accounting periods beginning on or after 1 January 2026, the general income threshold at which Scottish charities preparing fully accrued accounts require an audit increased to £1 million, subject to the asset test and other requirements. Trustees should check OSCR’s current external scrutiny guidance rather than applying England and Wales thresholds automatically.
Registered charities in Northern Ireland report to the Charity Commission for Northern Ireland. The Commission’s annual reporting guidance explains the accounts, trustees’ report and external scrutiny documents that must be submitted. Cross-border charities should identify every regulator and filing obligation at the planning stage.
Charity Audit or Independent Examination?
An independent examination is a proportionate form of external scrutiny available to eligible charities. It is narrower than an audit and does not provide an audit opinion. The examiner reviews the accounts and underlying records using procedures set by charity law and regulator guidance, then reports whether particular matters have come to their attention.
An audit provides reasonable assurance and involves a more extensive risk assessment and testing process. An independent examination is usually less intensive and can be more cost-effective for a qualifying charity, but it must not be selected simply because it is cheaper. Trustees must first confirm that the charity is legally eligible and that no governing-document, funder or stakeholder requirement calls for an audit.
The Charity Commission’s guidance for trustees on independent examinations explains the choice for charities in England and Wales. Millet Audit also provides charity independent examinations for organisations that fall within the appropriate criteria.
Even where an audit is voluntary, trustees may decide that the additional assurance is worthwhile. This can happen when a charity is approaching a threshold, applying for major funding, entering a merger, expanding overseas, taking on debt or seeking to strengthen confidence among donors and partners. The board should record why it chose the form of scrutiny and revisit the decision if the charity’s circumstances change.
Who Is Responsible for the Charity’s Accounts?
The trustees remain responsible for keeping adequate accounting records, safeguarding the charity’s assets, selecting appropriate accounting policies, preparing the annual report and financial statements and assessing whether the charity is a going concern. Appointing an auditor does not transfer those duties.
Management and finance staff may prepare the records and draft the accounts, while an external accountant may provide permitted assistance. The trustees must still understand the key judgements, challenge the information presented to them and approve the final documents. They should not wait until the signing meeting to read the trustees’ annual report or ask how a significant accounting estimate was reached.
The auditor’s responsibility is separate. Independence is essential because the auditor must form an objective opinion. The audit team will obtain an understanding of the charity, identify and assess risks, design responsive procedures, evaluate evidence and report its conclusions. Auditors are required to communicate certain matters to those charged with governance, but they are not responsible for running the charity’s control environment or making management decisions.
What Does a Charity Auditor Check?
The exact scope is tailored to risk and materiality, but several areas commonly receive attention in charity audits.
Income and Revenue Recognition
Auditors consider whether donations, grants, contracts, legacies, membership income, fundraising proceeds and trading income have been recognised in the right period and under the right accounting policy. They will look at entitlement, conditions, performance obligations, restrictions and the difference between exchange and non-exchange income. For periods beginning on or after 1 January 2026, charities preparing accruals accounts must consider Charities SORP 2026 and the revised FRS 102 requirements. Millet Audit’s SORP 2026 overview provides further context on the new tiered framework.
Restricted, Designated and Endowment Funds
Fund accounting is a central part of charity reporting. Auditors may compare grant agreements and appeal wording with the accounting treatment, test expenditure charged to restricted funds, review transfers and check whether fund balances and purposes are disclosed clearly. Restrictions arise from the donor or legal terms. A designation made by trustees does not turn an unrestricted fund into a restricted one. The article on accurate charity fund accounting explains these distinctions in more detail.
Expenditure, Payroll and Related Parties
Testing may cover purchase authorisation, supplier invoices, payroll records, expenses, grants paid, credit cards and payments to trustees or connected parties. The auditor will consider whether transactions have been recorded completely, allocated appropriately and authorised under the charity’s policies and governing document. Related-party relationships and transactions must be identified early because late discovery can affect both the accounts and the audit timetable.
Bank, Investments, Property and Other Assets
Bank balances are commonly confirmed or agreed to statements and reconciliations. Investments may require external valuations and consideration of income, gains, custody and restrictions. Property and equipment may require evidence of ownership, valuation, useful economic lives, impairment and additions or disposals. Lease changes under FRS 102 can also create new assets, liabilities and judgements for periods beginning in 2026.
Internal Controls and Fraud Risk
The auditor obtains an understanding of relevant controls to assess risk and design audit work. Areas can include online banking, segregation of duties, payment approval, cash collections, payroll changes, donation processing, grant monitoring, journals and access to accounting systems. The audit is not a complete control review and cannot guarantee that fraud will be detected. Trustees remain responsible for preventing and detecting fraud through appropriate governance and controls.
The Charity Commission’s internal financial controls guidance for charities is a useful benchmark. Controls should be proportionate, but limited staff numbers are not a reason to leave risks unmanaged. A smaller charity may use trustee review, independent bank access, dual approval and documented monthly checks as compensating controls.
Governance, Compliance and the Trustees’ Annual Report
Auditors read board and committee minutes, consider conflicts of interest, review compliance matters and assess whether information in the annual report is consistent with the financial statements and the auditor’s knowledge. The trustees’ report should explain the charity’s purposes, activities, achievements, public benefit, financial review, reserves, risks and plans at the level required by the applicable framework. Millet Audit’s article on items charities often miss in audited financial statements highlights several common disclosure problems.
Going Concern
Trustees must assess the charity’s ability to continue operating for the relevant assessment period and support their conclusion with budgets, cash-flow forecasts, funding information and sensitivity analysis. The auditor evaluates that assessment and the related disclosures. Where income is uncertain or reserves are restricted, the charity should show which resources are genuinely available and how it would respond to downside scenarios.
The Main Stages of a Charity Audit
Appointment and Scoping
The charity confirms that the proposed auditor is eligible, independent and appropriately experienced. The engagement letter sets out responsibilities and scope. The timetable should work backwards from the trustee approval meeting and regulatory filing deadline, allowing time for accounts preparation, fieldwork, clearance and review.
Planning and Risk Assessment
The auditor learns about the charity’s objectives, activities, systems, governance, funding and changes during the year. Discussions may cover fraud risk, legal claims, serious incidents, cyber events, financial pressure, new grants, property transactions, restructuring and changes in senior personnel. The auditor sets materiality and identifies areas requiring particular attention.
Preparation of the Accounts and Audit Evidence
Management finalises reconciliations, closes the ledger, prepares the draft accounts and assembles the evidence requested by the auditor. Good preparation means the schedules reconcile directly to the trial balance and the draft financial statements. Every significant balance, transaction class and disclosure should have a clear owner.
Fieldwork
The audit team performs tests, reviews documents, asks questions and follows up differences. Some work may take place remotely and some on site. Prompt, complete responses are helpful, but staff should not guess. Where the answer is uncertain, the organisation should check the source documents and provide a considered response.
Completion and Trustee Approval
At completion, outstanding matters are cleared, proposed adjustments are agreed or recorded as unadjusted, subsequent events are considered and written representations are prepared. The trustees review the accounts, annual report, audit findings and going-concern assessment before approval. Minutes should record the decision and any significant challenge or action.
Audit Report, Management Letter and Filing
The auditor signs the report when all necessary evidence has been obtained and the financial statements have been approved. A separate management letter may set out control weaknesses, observations and recommendations. The charity then files the required documents with the correct regulator. Charities in England and Wales generally file the annual return and required documents with the Charity Commission within ten months of the financial year end. Charitable companies also have Companies House filing duties, which operate separately.
Common Causes of Delay
The most frequent delays are rarely caused by one complex accounting rule. They usually arise from incomplete reconciliations, evidence that does not match the ledger, missing grant agreements, unclear fund restrictions, late preparation of the trustees’ report or unresolved going-concern forecasts. Another common problem is assuming that the external accountant or auditor holds information that remains the charity’s responsibility.
The practical answer is to keep one controlled request tracker. Each request should have an owner, due date, status and link to the supporting file. Evidence should be labelled consistently and supplied in final form where possible. If a schedule changes, the updated version should replace the old one or be clearly versioned. This reduces duplicated questions and prevents the audit team from testing an obsolete document.
Trustees can also improve efficiency by resolving judgement areas before fieldwork. If there is uncertainty over a grant condition, a lease, a provision, revenue recognition or the availability of restricted reserves, discuss it early. A short technical conversation in advance is usually better than reconstructing the issue at the completion meeting.
How Trustees Can Add Value During the Audit
Trustees do not need to perform the finance team’s work, but they should provide informed oversight. At least one trustee should understand the key movements in income, expenditure, cash and funds. The board should be able to explain major variances, financial risks, reserves and the assumptions behind the going-concern conclusion.
Audit findings should be discussed in substance rather than simply noted. If the auditor identifies a control weakness, trustees should consider the risk, the root cause, the practicality of the recommendation and the person responsible for action. Where the recommendation cannot be implemented, the board should agree to an alternative control and document its reasoning.
The annual report deserves the same attention as the primary statements. It is a public account of the charity’s stewardship and impact. It should be accurate, balanced and consistent with what trustees know. The best reports do not hide financial pressure, but explain it clearly alongside the steps being taken.
Choosing a Charity Auditor
A charity should look for a registered auditor with relevant charity experience, a clear understanding of SORP reporting and an audit process appropriate to the organisation’s complexity. Trustees may ask who will lead the work, how queries will be managed, what the timetable includes, how fees are set and how findings will be communicated.
Independence and audit quality matter more than the lowest headline quote. The proposal should define what is included, which records the charity must prepare and how additional work will be treated. A realistic timetable and a stable team can be valuable where the finance function is small or the charity has complicated funds and grants.
Millet Audit focuses on audit and assurance work and has experience supporting charities with statutory audits, independent examinations and not-for-profit reporting. If your charity is approaching a threshold, planning its first audit or considering a change of auditor, contact the Millet Audit team to discuss the organisation’s structure, reporting date and likely requirements.
A Better Audit Starts With Earlier Preparation
A charity audit should provide credible independent assurance while supporting good governance. It works best when the charity treats it as a planned annual process rather than a short burst of activity after the year end. Accurate records, clear fund accounting, current policies, well-supported judgements and engaged trustees all contribute to a more efficient audit.
Use this charity audit checklist as a starting point, then adapt it to the auditor’s request list and the charity’s circumstances. Thresholds and reporting requirements change, particularly across different UK jurisdictions, so trustees should check current official guidance and take professional advice where the position is unclear.
External sources used in this article: Charity Commission guidance on 2026 reporting changes, independent examinations, annual reporting and internal financial controls; Charities SORP 2026; OSCR external scrutiny guidance; Charity Commission for Northern Ireland annual reporting guidance.