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Charity Report and Accounts
This fact sheet provides a basic guide to the Annual Reports & Annual Accounts
which registered charities are required by law to submit to the Charity Commission
within ten months of their financial year end. Please note that the information in this
document applies for year ends on or after 01 April 2009. The prevailing accounting
law and requirement is the Charity SORP 2005 (updated May 2008) and the
Companies Act 2006.
Laws that govern charity reporting can change. It is important that you look at the
latest information to ensure you adhere to up-to-date laws that govern charities
where you are registered. Different laws apply to charities that are registered in
Scotland and Ireland.
The aim of the Annual Report and the Annual Accounts is to provide a clear picture of
the activities and financial position of the charity to those who have an interest.
Although these requirements may seem onerous to a small charity, they do require
you to define your aims and activities clearly and to manage your finances well, both
of which help to ensure that your organisation is more effective and its resources are
used for their intended purpose.
Requirements for Reports and Accounts
The type of Annual Report and Annual Accounts which a charity has to prepare
depends on its legal structure, its income, the value of its assets, whether or not it is
required to register as a charity and the form in which it keeps its accounts.
Charities may be split into two basic categories:
a. Charities which are limited companies (incorporated charities); and
b. Charities which are not limited companies (unincorporated charities)
Within each category, the precise reporting requirements are determined by the
income level of the charity and or the value of assets it holds.
For charities which are not limited companies, the level of income affects the method
used to produce accounts. There are two forms of accounts:
a. Receipts & Payments accounts (cash accounting)
b. Accruals accounts (Income & Expenditure)
There is a brief definition of these types of accounts on pages 3 - 4.
There is also a definition of the two types of annual scrutiny of accounts:
a. Independent Examination of Accounts
b. Statutory audit
The two tables on pages 6 and 7 summarise the reporting requirements for both
incorporated and unincorporated charities and the requirements are discussed in
detail below.
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Charities Which Are Limited Companies (Charitable
Companies)
Charitable companies must satisfy both charity law and company law. They must
prepare accruals accounts and prepare an Annual Report. Provided they meet the
criteria of a small company (income <£6.5m, net assets < £3.26m, employees <50)
accounts can be prepared without many onerous disclosures (such as a full audit as
opposed to a less rigorous Independent Examination) required by the full legislation.
Companies preparing group accounts cannot participate in this light touch regime.
Every charitable company must file full accounts with the Charity Commission and
even very small companies are advised to get help from an accountant who holds
relevant expertise.
Charities Which Are Not Limited Companies
Any charity may choose to keep accruals accounts even if the law does not require it
to do so. If you do keep accruals accounts, you must have an independent
examination of accounts carried out by someone experienced in charity accounting
and follow Charity Commission requirements for the Trustees Annual Report.
Any charity whose constitution calls for an audit must keep accruals accounts
regardless of its size and also have a full audit of its accounts. It may be best to seek to
amend your constitution if the audit is not actually required by law, in order to avoid
unnecessary work and expense.
Every registered charity is required to complete the Charity Commission Annual
Return. This is separate from the charity’s Annual Report & Accounts. The return
asks for some financial information from the accounts. Therefore even a very small
charity needs to prepare some form of annual accounts whether or not its
constitution requires it.

Gross annual income below £5,000
A small charity with a gross income below £5,000 per year is not required to
register with the Charity Commission but the law still requires it to keep proper
accounts. It is also likely that its constitution or trust deed will require it to
prepare annual accounts for its AGM.

Gross annual income between £25,000 and £250,000
An unincorporated charity with a gross income above £25,000 and below
£250,000 must prepare accounts and have an independent examination of
accounts. It is strongly recommended by the Charity Commission that this is
carried out by a person with adequate knowledge or qualifications in charity
finance. Receipt and payment or accruals based accounting can be used.

Gross annual income between £250,000 and £500,000 (value of
aggregate assets should be less than £3.26 million)
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A charity with the above income/aggregate asset condition must keep accruals
accounts and have an independent examination by someone as specified in the
Charities Act 1993.
A charity with gross income above £250,000 must follow guidelines from the Charity
Commission on the preparation of Trustees’ Annual Report. Key points should be
included:
1. structure (type of charity), governance (constitution) & management
(trustees responsibilities). Include how trustees are appointed, inducted and
trained and other issues that support best practice. Other areas to include are
period of trusteeship, sub-committees and their duties and frequency of
board meetings etc., details of how risk is managed and policies relating to
staff and volunteers recruitment and support.
2. charity’s aims and objectives and its strategy to achieve these
3. main activities undertaken to achieve the objectives. How these meet public
benefit rules, including the statutory declaration that trustees have had
regard to the guidance issued by the Charity Commission on public benefit.
4. achievements in relation to the objectives set for year
5. financial review, reserve policy, investment policy
6. future plans
7. trustees responsibilities and how the above relates to the accounts
Smaller charities are expected to explain their activities in the Trustees’ Report, but
do not have to give as much detail. However, this is a useful guide for charities in the
£250,000 to £500,000 bracket.
Registered Status to Appear on Documents
A registered charity with a gross income of £10,000 or more in the financial year is
required by law to state on a range of documents that it is a registered charity and to
quote its registration number. These documents include cheques, headed notepaper,
advertisements, notices, material placed on websites and any documents used for
fundraising or membership purposes.
Types of Accounts
Receipts & Payments Accounts
The receipts & payments basis is a simplified form of accounting. It summarises the
movements of money during the financial year; entries are only made in the cash
book at the time that cash or a cheque is received or a payment is made. The final
balance does not take into account debtors (i.e. money owing) or creditors (i.e. money
which you owe): it simply shows how much your group has at the end of the year.
The law does not specify any format for preparing Receipts & Payments accounts but
they should be prepared in a consistent way from year to year. The Charity
Commission provides straightforward forms for charities which wish to use them as a
format for their accounts. If you present Receipts & Payments accounts, you must
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also provide a statement listing assets and liabilities at the end of the year; this
includes debtors, creditors and the value of equipment, land and buildings.
This type of accounts is much easier for a small charity. It is adequate for a charity
with a small annual income so long as its financial dealings are straightforward.
When the financial structure of the charity becomes more complicated, it may be
better to adopt accruals-based accounting. You may need to get professional advice if
you move over to accruals accounting in order to ensure that you make the change
smoothly and keep the right sort of records during the year to enable your group to
complete the Annual Accounts required.
Accruals Accounts
The accruals basis is a method of accounting which adjusts the receipts and payments
by including debtors, creditors and charges for depreciation to arrive at the income
and expenditure account. Accruals accounts include a statement of financial activities
and reports the value of all the resources of the charity and the balance sheet provides
a `snapshot` at the beginning and end of the year.
Every charitable company must use the accruals basis. An unincorporated charity
with an annual income below £250,000 may choose either receipts & payments or
accruals accounts; above that income threshold it is required to adopt accruals
accounts.
A charity preparing accruals accounts, whatever its size, is required by law to follow
the Statement of Recommended Practice (Charity SORP). The Annual Report and
Annual Accounts must consist of:
1. an Annual Report to explain the activities and finances of the charity
2. a statement of financial activities showing incoming resources and how they
were used
3. income and expenditure account
4. a balance sheet
5. notes to the accounts
6. audit report or independent examiner’s statement.
A charity with an annual income above £250,000 is required to include statements
stating how it manages its Risk and Reserves. It is best practice for every charity
using accruals based accounts to include these statements. There are precise rules on
the preparation of accruals accounts and the Trustees Report, and most organisations
will need to get professional advice.
Types of Examination of Accounts
Independent Examination of Accounts
This is the process of scrutinising a charity’s Annual Accounts below the level of a
professional audit. The procedures are defined by law and by the Directions of the
Charity Commission. The Independent Examiner will gain an understanding of the
charity, look at the Annual Accounts and supporting documents and write an
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independent report for circulation with the Annual Accounts and Trustees’ Annual
Report. The duty of the independent examiner is to give what is called ‘negative
assurance’. After looking at the evidence the Examiner Reports whether or not certain
matters `have come to my attention`. These include lack of accounting records and
the failure of Annual Accounts to comply with the Charities Act.
As well as scrutinising the Annual Accounts, the independent examiner may also help
prepare the Annual Accounts in the format required and help prepare the Trustees’
Annual Report.
An independent examiner may be a charity treasurer or finance worker or an
accountant. The key is that they must have a good understanding of charity finance
and the law. To carry out an independent examination of a charity with an income
above £250,000 it is expected that the examiner will be a professional accountant or
someone with a qualification in charity finance.
When choosing an independent examiner, you should make sure that he or she is
fully independent of your charity and able to carry out an independent examination
of all aspects of the charity’s work. The Charity Commission gives guidance on
selecting an examiner in Appendix 1 of Independent Examination of Charity Accounts
2001 (CC63). There is also a professional body called the Association of Charity
Independent Examiners (ACIE) which can give you the details of local examiners who
are registered with ACIE. There is however no requirement to register with ACIE
(details on page 4) and there are many unregistered examiners who fully meet
Charity Commission standards.
Statutory Audit
The audit process is defined by law and is carried out by a Registered Auditor (a
Chartered or Chartered Certified accountant). An audit is the highest level of scrutiny
of Annual Accounts and the auditor looks for positive evidence to enable the Annual
Accounts to be described as representing ‘a true and fair’ view of the financial
statements presented.
Every charity with an annual income above £250,000 is required to have an audit.
Funding organisations sometimes ask for a copy of audited Annual Accounts; if your
charity is not required to have an audit, point this out to the funding body and
explain the legal basis of the Independent Examination or the Accounting Report (as
appropriate) - funders will usually be satisfied.
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Summary: Charities Which Are Not Limited
Companies
Gross income
or total
expenditure in
current year
Filing Annual
Report, Annual
Accounts and
Annual Return
Annual Report
Less
(simplified) if
than£25,0000
registered. Annual
Information Return
Annual
Report(simplified),
Between £25,001
Annual Accounts
and £250,000
(within 10 months) &
Annual Return
Between
£250,001 and
Full Annual Report,
£500,000 or
Annual Accounts
Income over
(within 10 months) &
£250,000 and
Annual Return
aggregate assets
less than £3.26m
Above £500,000 Full Annual Report,
(includes
Annual Accounts
subsidiary
(within 10 months) &
income) or
Annual Return.
income over
Summary Information
£250,000 and
Return if Income
aggregate assets exceeds £1 m for
exceed £3.26m
charity or group.
Basis of
accounts
Receipts &
Payments or
Accrual Basis
(in accordance
with 2008
regulations
and SORP)
Accrual Basis
(in accordance
with 2008
regulations
Minimum External
Verification
None unless required by
a Government
Document
Independent
examination unless
audit is required by
constitution or a a
Government Document
Independent
examination by a body
specified in the 1993 Act
unless an audit is
required by constitution
or a Government
Document
Statutory audit by
registered auditor
Notes:
1. This is a guide only. The Charity Commission can require an audit even if the law
does not. The threshold is based on gross (not net) income, and should include
branch income, but can exclude transactions between the charity and its
branches or between branch and branch i.e. where the income to one is an
expense to the other. These are defined in the Charity Commission publication
Accounting & Reporting by Charities, Statement of Recommended Practice.
2. (a) A charity below £5,000 which has not opted to register with the Charity
Commission must still keep proper accounting records.
(b) (i) If you present a Receipts & Payments account, it must be accompanied by a
Statement of Assets & Liabilities.
(b) (ii) if the constitution or other governing document of your organisation
requires you to have an audit, then you have no option but to present your
Annual Account on the accruals basis and have a full audit. If using accrual basis,
Annual Accounts must be prepared in accordance with 2008 regulations and the
SORP. If you are below the £500,000 threshold, the charity can ask the Charity
Commission to allow an amendment to its constitution to remove the
requirement for an audit.
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3. Summary Information Return only necessary for the group and not for each
subsidiary.
Summary: Charitable Companies
Size of
company
Less than
£25,000
Between £25,001
and £500,000
and where
income exceeds
£250,000
aggregate assets
less than £3.26m
Above £500,000
(includes
subsidiary
income) or
income exceeds
£250,000 and
aggregate assets
exceed £3.26m
Over £500,000
Filing Annual
Report, Annual
Accounts and
Annual Return
Accounts to be
filed with the
Charity
Commission
Minimum
External
Verification
Annual Report
(simplified). Annual
Information Return
None unless
required by a
Government
Document
Annual Report
(simplified), Annual
Accounts (within 10
months) & Annual
Return
Independent
Examination or
audit unless
Constitution require
audit
Full Annual Report,
Annual Accounts
(within 10 months) &
Annual Return.
Summary
Information Return if
Income exceeds £1 m
for charity or group.
Full Report
Accrual Basis (in
accordance with
2008
regulations).
Statutory audit by
registered auditor
Statutory audit
Notes
1. This is a guide only. The threshold is based on gross (not net) income. For
limited companies the Charity Laws and/or Company Laws can dictate reporting
and filing requirements.
2. A charitable company must file its full Annual Accounts at the Charity
Commission even if it files abbreviated Annual Accounts at Companies House
(under the ‘small company’ rules).
3. An audit may be required
(a) by the memorandum & articles (Constitution) or by decisions of the members
of the company, or
(b) because the company goes outside the criteria of a `small company’.
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Some Further Information About Independent
Examiner
(taken from NCVO website)
Organisations That Benefit from Independent
Examinations
For the vast majority of charities that have less than £500,000 (increased for
accounting periods commencing on or after 27 February 2007) total annual income,
the law allows an Independent Examination instead of a full professional audit. This
includes:
 Registered and recognised charities
 Excepted charities (for example, churches, scout groups).
In England & Wales there is no requirement in law to have an Independent
Examination if the charity's income is below £25,000. However, even below £25,000
you may still want an Independent Examination to satisfy your members or funders.
Unless your constitution says that you must have a full audit, most funders and
donors are very happy to accept independently examined Annual Accounts. Even if
your funders say that want audited Annual Accounts, it is always worth clarifying
this.
Note that all the thresholds apply to the total income of the whole charity taking all funds and projects together. If your organisation is not a charity in its own
right but is simply a branch of a larger charity, the audit requirement will almost
certainly apply to the parent charity.
In the past, people have used the term 'audit' to refer to any kind of scrutiny of
Annual Accounts. But since 1992, a charity audit means a full professional audit by a
firm of registered auditors.
Preparing for an Independent Examination
If you do not have the skills to produce a full set of Annual Accounts complying with
charity law, most Independent Examiners will help with preparing accounts in
addition to examining them. They may also provide assistance with preparation of
the trustees' Annual Report.
When approaching someone to act as your Independent Examiner, do make clear
what you are seeking. As a general rule, preparing and examining accounts involves
at least three times as much work as an Independent Examination of Annual
Accounts already produced.
If you are going to prepare the Annual Accounts yourselves, you must have a proper
understanding of the legal requirements. Below £250,000 income the Annual
Accounts can usually be prepared as a receipts and payments account (for each fund)
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plus a statement of assets and liabilities, unless the charity is incorporated. Above
£250,000 income the Annual Accounts must follow the SORP format (statement of
financial activities, balance sheet, and notes). Although if your charity is growing it
will be more useful to follow the SORP format from an early stage.
Who Can Be an Independent Examiner?
The law defines an Independent Examiner as an independent person who is
reasonably believed by the charity trustees to have the requisite ability and practical
experience to carry out a competent examination of the Annual Accounts.
The key issues are:



independence (not someone closely connected with any trustee)
ability and experience (especially experience of charity accounts)
willingness to devote the time and effort needed for a competent examination
of the Annual Accounts, in accordance with the various regulations on
Independent Examination
Further requirements have been introduced with the increase in the
threshold.
Where the gross income exceeds £250,000 and there is no requirement for a
statutory audit the examiner will need to be a member of a specified accounting body.
These are defined by The Charities Act 2006 as:
 Institute of Chartered Accountants in England and Wales (ICAEW)
 Institute of Chartered Accountants of Scotland (ICAS)
 Institute of Chartered Accountants in Ireland (ICAI)
 Association of Chartered Certified Accountants (ACCA)
 Association of Authorised Public Accountants (AAPA)
 Association of Accounting Technicians (AAT)
 Association of International Accountants AIA)
 Chartered Institute of Management Accountants (CIMA)
 Institute of Chartered Secretaries and Administrators (ICSA)
 Chartered Institute of Public Finance and Accountancy or (CIPFA)
 A Fellow of the Association of Charity Independent Examiners. (ACIE)
Those acting as Independent Examiners for charities with income under
£250,000 can include:





professional accountants in practice
accountants in industry or public sector, retired accountants
other charity trainers or consultants who provide an Independent
Examination service
staff in community accountancy projects
voluntary Independent Examiners (or those who act for a nominal fee) - for
example many experienced charity treasurers act as Independent Examiners
to other charities.
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When choosing an Independent Examiner, you will wish to take into account the
person's qualifications and experience. Remember, the trustees ultimately decide
whether the examiner has enough competence and experience. It is often worth
checking to see if they have experience of charity accounts and should consider taking
up references on the capability of the individual. The threshold change took effect for
accounting periods starting after 27 February 2007 and will require examiners of
charities with income of over £250,000 to be a member of a specified accounting
body.
A key qualification in the field is Full Membership of the Association of Charity
Independent Examiners (ACIE). Full Members are subject to regulation by ACIE, and
are entitled to use one of three professional designations - LCIE, MCIE or FCIE which also determine the threshold to which they can examine charity accounts.
An Independent Examiner must be a person and not a firm or organisation. So if you
approach a firm of accountants, or a voluntary sector body, there must be a definite
individual who is the examiner and he or she will give a personal opinion on your
Annual Accounts.
How Can We Find a Suitable Independent Examiner?
The Association of Charity Independent Examiners operates a free referral service for
charities seeking Independent Examiners. Requests must be made in writing. You
will be sent a suitable up-to-date list of Full Members. If you find an Independent
Examiner in another way, remember to check their qualifications.
An Independent Examiner must be a person and not a firm or organisation. So if you
approach a firm of accountants, or a voluntary sector body, there must be a definite
individual who is the examiner and he or she will give a personal opinion on your
Annual Accounts.
Confirming the Appointment
Once your trustees have agreed to appoint a particular person as the Independent
Examiner it is vital to confirm this in writing. Some Examiners have a standard
engagement letter. Otherwise, you need to send a letter to the person, confirming that
they are appointed "to undertake an Independent Examination of the charity's
accounts in accordance with the Charities Act 1993". This must be signed on behalf of
the charity trustees. It must also make clear:



the charity concerned
the accounting year(s) to which the appointment applies
fees and timescales for the work.
The Examiner's Report
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Once the Independent Examination is complete, the Examiner must provide you with
a signed report on your accounts (similar to an auditor's report). All copies of your
accounts must include the Independent Examiner's Report.
Diocesan Accounts (Branch Accounts)
Branches are not separate legal entities, therefore their financial activities should be
part of the parent charity, which is the registered charity. Below is the regulations
that govern branch accounting. Branch accounting has a different meaning in
accounting terms to consolidation of accounts. To produce meaningful accounts
branches should ideally follow the same accounting period as the parent charity.
SORP Definition of a Branch
(taken from Charity Commission website)
The Charities SORP 2000 carries a definition of "branch" in order to clarify the status
of organisations for accounting purposes. The definition is designed to ensure that all
funds that are either legally part of a reporting charity or are legally part of a charity
that is linked to a reporting charity, are covered by the accounts of the reporting
charity. The SORP is trying to distinguish these funds from funds which are part of
entities which are reporting charities in their own right, even though they may be
known as "branches". The exact status of "branches" in the SORP sense, and their
relationship with the reporting charity, determines whether or not they are treated as
separate organisations for registration.
The SORP gives the following definition of "branch":
"Branches (which may also be known as supporters' groups, friends'
groups, members' groups, communities or parishes which are part of a
common trust, etc) are entities or administrative bodies set up, for
example, to conduct a particular aspect of the business of the reporting
charity, or to conduct the business of the reporting charity in a particular
geographical area. They may or may not be legal entities which are
separate from the reporting charity."
A branch in terms of the SORP definition will be therefore be one of the following:
a) part of the administrative machinery of the reporting charity;
b) a special trust or restricted fund of the reporting charity;
c) a distinct charity not falling within (b) which we have united by a direction
under section 96(5) or section 96(6) of the 1993 Act providing for it to be
treated as linked to the reporting charity for accounting purposes.
These are fairly limited definitions, but the SORP goes on to list some characteristics
which may indicate that the entity is a branch for accounting purposes. It may:

use the name of the reporting charity within its title;
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



exclusively raise funds for the reporting charity and/or for its own local
activities;
use the reporting charity's registration number to receive tax relief on its
activities;
be perceived by the public to be the reporting charity's local representative or
its representative for a particular purpose;
receive support from the reporting charity through advice, publicity materials,
etc.
If the branch exists to carry out the primary objects of the reporting charity, typically
it will receive funds from it to carry out its work, and may be staffed by employees of
the reporting charity.
If the branch is not a separate legal entity, all funds held by the branch will be the
legal property of the reporting charity, whether or not the branch has a separate bank
account. This would be the case where the local group is run by committees who are
wholly answerable to the parent body's trustees, and do not have any independence
or accountability separately from their responsibility to these parent trustees.
How Should a Charity Account For Its Branch(es)?
(Taken from Charity Commission website)
The activities of a branch of a charity, as defined by the Charities SORP 2005, are
part of the activities of the charity administering the branch and are included within
that charity's Annual Accounts. For further information please refer to paragraphs 77,
79 and 80 of Charities SORP 2005.
However, where the branch(es) are companies in their own right, Company Law also
requires each entity to prepare its own Annual Accounts. Where the branch(es) are
distinct charities - and treated as separate accounting entities controlled by the
parent charity - the parent entity may then, subject to meeting the test of control and
benefit set out in FRS2, consolidate its subsidiary branch(es) into its group accounts.
Please see paragraphs 77, 78 and 383 of the Charities SORP 2005 for further
information.
Useful Addresses
Charity Commission,
13-15 Bouverie Street
Harmsworth House
London EC4Y 8DP
Tel. 0845 3000 218
Minicom: 0845 3000 219
www.charitycommission.gov.uk
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Association of Charity Independent
Examiners (ACIE)
Bentley Resource Centre
High Street
Bentley
Doncaster DN5 0AA
Tel. 01302 828338
[email protected]; www.acie.org.uk
Useful Publications By the Charity Commission –
Ensure You Use the Up-To-Date Version At All
Times.




Charity reporting and accounting : the essentials April 2009 (CC15b)
provides more details about the purpose and content of Annual Reports.
Receipts and Payments accounts pack (CC16) for charities with gross annual
income up to £250,000 which want to prepare receipts and payments
accounts
Accruals accounts pack (CC17) for charities with gross income up to £500,000
which want to prepare accruals accounts by charitable activity
Accruals accounts pack (CC39) for charities with gross income up to
£500,000 which want to prepare accruals accounts by natural category
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