ICAS has responded to proposed reforms to Scottish charity law

The Institute of Chartered Accountants in Scotland has recently published its comments on the Charities (Regulation and Administration) (Scotland) Bill which is currently under consideration by the Scottish Parliament. A summary of the contents of the Bill, and of the responses by ICAS, can be found at this link 

The full text of the written comments from ICAS can be downloaded via this link

Consultation on these reforms began four years ago.  The ICAS page linked in the first paragraph above includes a helpful summary of the provisions included in the Bill. In broad terms, these provisions aim to strengthen the powers of the Office of the Scottish Charity Regulator (OSCR) in certain respects, to make charities more accountable and to improve transparency (for example, by publishing the names of charity trustees on OSCR’s website). ICAS describes its position as “broadly supportive of the reforms”.

Perhaps more interesting than the comments ICAS make on the contents of the Bill – and certainly more interesting to those of us who are involved in the preparation and audit of charity accounts – are the comments on what has not been included in the Bill.

It is approaching 20 years since the Charities and Trustee Investment (Scotland) Act 2005 and the Charities Accounts (Scotland) Regulations 2006 were put in place. Much has changed in that period and we now have extensive experience of how the Act and the Regulations have worked in practice. ICAS has expressed its “disappointment” that a broader review has not been undertaken.

One particular point mentioned by ICAS is the requirement for larger charities to produce audited accounts. In broad terms, a Scottish charity will require an audit if its annual gross income exceeds £500,000 or if its gross assets exceed £3,260,000.  By way of comparison, the income level for the audit requirement for charities in England and Wales is £1,000,000.

On the basis of an overview of the Scottish charity sector in 2021 there were approximately 1,500 charities with annual income in excess of £500,000, with some 500 or so of those being in the band £500,000 to £1,000,000.  This suggests that if the exemption threshold were to be raised to the same level as England, something in the region of 500 charities would fall out of the audit regime.

Whilst an audit may be seen as an important safeguard within the overall regulatory regime, there is no doubt that the requirement for an audit is an administrative and financial burden for charities. The latest ICAS paper notes that the number of audit registered firms in the UK has fallen by more than 60% since 2001. The consequence of this, in conjunction with other factors, is that, to quote ICAS, “it is increasingly difficult for audit registered firms to offer audit services to charities for a fee that is financially viable for the firm and affordable to the charity”

Taking into account the various demands on the charitable sector at the moment and the broader economic and political environment, it appears to be clear that a broader review of Scottish charity legislation would be welcomed by charities and also by the accounting and audit profession.

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