UK: Financial Reporting Requirements - Are You Aware Of The New Regime?

Last Updated: 11 March 2009
Article by Adrian Wild

For periods starting on or after 1 April 2008, charities need to be aware of different accounting and reporting requirements.

The statutory framework under which charities are required to prepare their accounts and reports has been updated to reflect public benefit reporting requirements, and to specify the requirements relating to group accounts and reports. This affects accounting periods starting on, or after, 1 April 2008.

Public Benefit Reporting

The most significant impact is likely to be the public benefit reporting requirements, which arise in two areas.

  1. A charity's review of activities undertaken in the year must relate to how those activities furthered its charitable purposes for the public benefit.
  2. The trustees must make a statement as to whether they have complied with their duty to have regard to guidance published by the Charity Commission on public benefit.

To assist with these requirements, the commission has published an example of a trustees' annual report setting out how these reporting obligations may be met. This is available at

Group Accounts

Prior to the Charities Act 2006, there was no statutory framework for charity group accounts. However, with the implementation of this Act, charitable groups must now prepare group accounts if their consolidated gross income is greater than £500,000.

The reporting framework specifies the basis on which the group accounts and the trustees' annual report are to be prepared. These largely follow the requirements for single entity charities.

Risk Statements

The requirement for trustees to include a statement that they have considered the major risks to which the charity is exposed has been expanded. Previously, trustees had to make a statement that they have established systems or procedures to manage these risks. However, going forward, trustees have to make a statement that they have satisfied themselves that systems or procedures are established to manage risks.

The Statement of Recommended Practice (SORP) 2005 has also been updated to reflect the impact of the act and the revised reporting framework. However, the SORP requirement in this respect has not been changed. Therefore, trustees will need to continue to make a statement that they have established systems to manage risks, and now also state that they are satisfied that the systems are established. This should not make any difference in practice as trustees should be gaining comfort that the systems are operational as a matter of course.

Audit/Inspection Regime For Small Charitable Companies

For accounting periods starting on, or after, 1 April 2008, charities exempt from audit under the Companies Act are brought under the audit/independent examination regime of the Charities Act 1993. This has three main implications for smaller charitable companies.

1. Exemption From Audit

Exemption from audit is only available if the charity is exempt under both the Companies Act and the Charities Act. However, in certain circumstances, a charitable company can be exempt from audit under the Charities Act 1993, but not under the Companies Act 2006. The charity needs to check both acts carefully and be aware that the Companies Act 2006 exemptions require consideration of both the current and the preceding year.

Charities taking the audit exemption must include a statement on their balance sheet stating that the charity is exempt from audit under the Companies Act 2006.

2. New Independent Examination Limit

Previously, charitable companies that were exempt from audit required an accountant's report to be prepared if their income was above £90,000. However, under the Charities Act, an independent examination is now required if the charity's income is greater than £10,000. This reduced lower limit will result in a greater need for charitable companies to have their accounts examined. An independent examination is more onerous than the preparation of an accountant's report, and may take more time and require greater trustee involvement.

3. Lower Limit For Group Accounts

For small charitable companies with subsidiaries, unless the consolidated income is less than £500,000, group accounts must be prepared (previously, the Companies Act limits applied, which were much higher). These group accounts must be audited, unless the income is less than £500,000 (or £100,000 if the total assets are more than £2.8m). This compares to the previous limit of £700,000.

Proposed Changes To Regulatory Limits

The Office of the Third Sector has committed to reducing the regulatory burden on small charities by increasing certain limits (figure 1). In addition, currently the accounts of charities with income of more than £100,000 and a balance sheet total of more than £2.8m need to be audited. It is proposed that these limits should be increased to £250,000 and £3.6m.

The legislation to enact these changes is expected to be published shortly.

Fig 1: Proposed Financial Reporting Regulatory Limits For Small Charities


Annual Income

Current Limit

Proposed Limit

Submission of accounts to the commission



Submission of trustees annual report to the commission



Preparation of accruals accounts



Independent examination required



The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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