Charities ask to be excluded from audit reforms

Writing in response to the government white paper Restoring Trust and Confidence in Audit and Corporate Governance, the Charity Commission England and Wales has requested that charities be excluded from the corporate reforms.

Responding to a series of corporate failures and calls for large-scale changes in audit regulations, the report seeks to impose a new set of standards on public interest entities (PIEs), and recommends expanding the definition of what type of firms qualify.

Currently, PIEs are defined as publicly traded companies, banking institutions and insurance firms.

The government is now proposing to extend the definition of a PIE to include large companies regardless of whether they are publicly traded. 

The government has not currently settled on how to define the new parameters, but has laid out two options that would capture large charities with annual income over at least  £200 million and large staffing pools, unless they were explicitly made exempt.

The commission’s statement supported the government’s objective to improve the UK’s audit and corporate governance framework, but made clear it believed the imposing new audit regulations on charities would place an undue financial burden on the sector.

“The commission’s position is that it does not support extending a framework designed with the interests of shareholders and for-profit commerce in mind to the charity sector where these imperatives simply do not apply,” the statement said. 

“We therefore recommend that charities are not included within the definition of public interest entities and associated corporate reforms.”

Moreover, it argued that the framework already in place for governing the charity sector is sufficient in policing conduct.

“Having considered the existing charity reporting and governance framework and the absence of comparable failures to those cited in the consultation document, the commission concluded that the case has not been made for including charities as PIEs,” it said.

The commission did not suggest that the sector should be excluded entirely from the government’s initiative to strengthen corporate oversight.

“Instead of proceeding with the designation of certain charities as PIEs, we invite government to work with the commission and the charity sector and stakeholders to establish the extent to which the existing mechanisms that are already in place for the charitable sector could be enhanced to meet the desired outcome of the government of improved corporate governance and oversight,” it added.