Many charities that will no longer require an annual audit under new rules are opting to continue the process to demonstrate good governance and provide confidence to funders, donors and other stakeholders, according to audit, accountancy and business advisory firm Saffery in Leeds.

New rules have come into effect for financial years ending on or after 30 September 2026, which increase the gross annual income threshold for a mandatory audit from £1m to £1.5m for charities in England and Wales. An audit is also required where gross income exceeds £500,000 and gross assets exceed £5m, compared with the previous thresholds of £250,000 and £3.26m respectively.

The Government estimates the changes will remove around 2,000 charities from the mandatory audit regime.

Saffery advises more than 400 charities and other not-for-profit organisations across the UK on tax, VAT and accounting matters, as well as providing risk-based audits. Kathryn Belton, a director at Saffery in Leeds who specialises in the charities and not-for-profit sector, said many charities are expected to continue with an audit because of the wider benefits it provides.

Kathryn said: “For some smaller charities, the changes will remove the administrative burden of an audit, but many are still choosing to have their accounts audited because of the confidence and reassurance it offers.

“An unmodified audit report, alongside a strong annual report, can help demonstrate to funders, donors, trustees, staff and other stakeholders that a charity is well governed and financially robust.

“For charities about to undergo an audit, good preparation can make a significant difference to how smoothly the process runs. One of the most important things is ensuring documentation is accurate, comprehensive and up to date, with clear records of all income, including donations, legacy income, trading and rental income.

“For legacy income in particular, given the sometimes uncertain nature of when the cash will be received, charities should retain relevant correspondence from executors and solicitors, including estate accounts, and document their assessment of when the charity became entitled to the legacy, in support of the accounting treatment and audit process.

“If there is any uncertainty about how a transaction should be accounted for, it’s best to raise it with the audit team as early as possible.

“Charities should also pay close attention to restricted and designated funds that are earmarked for a specific purpose. Restricted income and expenditure should be monitored throughout the year, while designated funds need to be formally agreed and documented in trustee meeting minutes ahead of the year end.

“Although an audit focuses heavily on financial reporting, charities should also regularly review whether their activities continue to align with their charitable objectives, particularly when introducing new activities or changing existing ones.

“Good communication with the audit team is another key part of the process. Agreeing the timing of fieldwork and meetings in advance, ensuring relevant finance staff are available to answer queries and responding promptly to information requests can all help make the process more efficient.”

Finally, Kathryn added: “We also encourage trustees to take an active role in the audit, including attending planning or closing meetings where appropriate. The trustees’ report should be started as soon as possible after year-end, giving sufficient time for it to be reviewed and ensuring it complies with the relevant accounting framework and Charities SORP.

“Ultimately, the better prepared a charity is, the more straightforward the audit is likely to be. Good record-keeping, accurate financial reporting, early communication and trustee involvement can all contribute to a smooth, successful and beneficial year-end audit.”

Saffery