Section 3 Eligibility for independent examination

Published: 18/04/2019
Updated: 18/04/2019

In Scotland, the formal requirements for accounts and external scrutiny are contained within the 2005 Act and the 2006 Regulations. The requirements differ depending on the legal form of the charity, the level of the charity’s income and any relevant provisions contained in the charity’s governing document.

This section looks at the relevant factors and explains how to understand what the required form of external scrutiny is for a charity.

More detailed information on the preparation of accounts and the relevant requirements can be found within OSCR’s Guides to Charity Accounts.

The table below sets out the formal requirements under the 2006 Regulations for the form of accounts to be prepared by Scottish charities.

Gross income

Format of accounts

Less than £250,000

Non-company charities:

receipts and payments accounts

Charitable companies and Community Benefit Societies: fully accrued accounts

£250,000 and over

Fully accrued accounts

Preparers of accounts also need to consider any relevant requirements of the charity’s governing document in understanding the format of accounts to be prepared – there may be provision requiring accrued accounts to be prepared for example which would overrule the above threshold requirements.

Receipts and payments

Non-company charities with gross income of less than £250,000 will normally prepare a simple form of accounts called ‘Receipts and Payments Accounts’. These are much easier to compile than fully accrued accounts as they simply provide basic information regarding the money that has come into and been paid out by the charity. Therefore, an individual does not need to be professionally qualified to undertake the role of independent examiner for these accounts.

However, where an audit of receipts and payments accounts is required as a result of a requirement in the governing document, a decision of the charity trustees or any other enactment, a qualified auditor will be required.

Trustees of charities that are eligible to prepare receipts and payments accounts may choose to prepare fully accrued accounts instead. However, they should be aware that such accounts will require to be examined by a qualified independent examiner, which may have a cost implication for the charity.

Fully accrued

Charitable companies are always required to prepare fully accrued accounts. They do not have the option of preparing receipts and payments accounts. This is due to company law requiring such bodies to prepare accounts that are ‘true and fair’.

Non-company charities with gross income of £250,000 or above must also prepare fully accrued accounts.

Where fully accrued accounts are prepared, they must be prepared under the methods and principles of the SORP. The external scrutiny of fully accrued accounts must be carried out by an individual who is professionally qualified to understand such accounts as they can be complex in comparison to receipts and payments accounts. 

Flowcharts 1 and 2 provide a step by step guide to understanding the appropriate form of external scrutiny for Scottish charities. Note that there are different steps depending on whether the charity is a company or not.

Flowcharts 1 and 2 show that there are different forms of independent examination depending on the form of accounts being produced by a charity. In the next section we will look at these differences to provide a better understanding of the relevant underlying principles and how this affects the process of the independent examination.

Milestone 2

Is it clear whether receipts and payments accounts or fully accrued accounts are to be prepared by the charity for the financial year concerned?

  • If it is still unclear which type of accounts should be prepared, please refer to our Guides to Charity Accounts.

  • If receipts and payments accounts are to be prepared, you may wish to use our Receipts and Payments Workpack.

  • If fully accrued accounts are to be prepared, the SORP is available to download from www.charitysorp.org.

Flowchart 1: External scrutiny for non-companies

Flowchart 2: External scrutiny for Companies