Charity Accounting Changes: What Trustees Need to Prepare For

Missing an important reporting requirement under the new accounting rules can leave charity trustees worried about submitting incomplete or inaccurate accounts. The Charity Commission has stressed that financial transparency underpins public trust and confidence in the £100 billion charities in England and Wales spend delivering impact. 

With SORP 2026 applying to financial years starting on or after 1 January 2026, trustees need to understand which requirements affect their organisation. So, what should trustees prepare now to keep their charity’s accounts and annual reports on track?

1. Review the New Charity Accounting Rules

Start with SORP 2026, the updated charity accounting framework for charities preparing accruals accounts, where charity accounting follows a distinct framework from business accounting because reporting is designed around transparency, honesty, resource stewardship, and mission delivery rather than profit. It applies to reporting periods beginning on or after 1 January 2026. For a charity with a March year-end, that means the first accounts under the new framework cover the year ending March 2027.

The framework replaces the previous two-tier structure with three tiers based on gross income under charities SORP:

• Tier 1: income up to £500,000
• Tier 2: income above £500,000 and up to £15 million
• Tier 3: income above £15 million

Reporting requirements rise with each tier, including when charities may need more scrutiny of their financial statements. SORP 2026 also brings updates covering income recognition, lease accounting, reserves, future plans, impact reporting, and environmental, social and governance matters, with reserves and cash flow remaining key indicators trustees use to assess operational health as they judge mission fulfilment and financial stewardship.

One change worth noting early: Tier 1 and Tier 2 charities that qualify as small entities under FRS 102 are no longer required to produce a statement of cash flows, though they can choose to. Tier 3 charities must provide one, with no exemption available.

What trustees should prepare:

• Identify which SORP 2026 tier applies to the charity.
• Review the reporting requirements attached to that tier.
• Ask the finance team to flag accounting policies that need updating.
• Confirm the charity’s existing reporting processes remain suitable, and arrange compliance support early if the framework changes what the organisation must produce.
• Note the first reporting period the new framework will cover.

2. Check the Charity Audit Threshold Against Your Figures

Revised accounting and charity audit thresholds apply to accounting years ending on or after 30 September 2026. These changes apply to charities in England and Wales. Charities operating in Scotland or registered in Northern Ireland should also check the rules set by their own regulator, as the revised charity audit requirements do not carry across the UK. In England and Wales, these significant changes revise the main thresholds that determine the level of review required.

The updated figures affect the type of accounts a charity can prepare and whether audit and independent examination applies, as well as the level of independent scrutiny required.

Requirement	New threshold
Independent examination required	Income over £40,000
Professionally qualified independent examiner required	Income over £500,000
Receipts and payments accounts available to eligible non-company charities	Income below £500,000
Audit required	Income over £1.5 million, or gross assets over £5 million combined with income over £500,000
Group accounts required	Aggregate group income over £1.5 million

Charities with annual income under £25,000 usually need no audit, but trustees must appoint an independent examiner once income goes over £25,000 under the current rules. The charity audit threshold has two limbs, and the asset figure does not stand alone. A charity holding significant property but reporting modest income will not fall into audit on the asset figure by itself.

For some charities, the revised figures open up a choice rather than imposing a duty. A charity with income between £1 million and £1.5 million may now be able to move from a charity audit to independent examination. Most charities below the audit requirement can use an independent examination instead of a full audit.

An independent examination is less thorough and usually cheaper, while a statutory audit provides a higher level of independent assurance. Trustees make that decision, and funders or lenders may still expect audited accounts regardless of what the law requires.

What trustees should prepare:

• Review the latest income and gross asset figures.
• Confirm the accounting year-end date and which rules apply to it.
• Check that current examination or audit arrangements remain appropriate.
• Review aggregate group income if the charity has subsidiaries or connected organisations, as corporate finance advice helps where the group structure is complex.
• Ask a qualified accountant to confirm how the charity audit requirements apply to the organisation.
• Consider what funders and other stakeholders expect before reducing scrutiny.
• Assess thresholds alongside the charity’s legal structure, governing document, and any funding conditions already in place.

3. Update the Trustees’ Annual Report

The Trustees’ Annual Report deserves close attention this year. SORP 2026 refreshes the guidance on how charities present information about their activities, financial position, reserves, future plans, and impact.

Several areas that were once recommended for larger charities now apply more broadly. Every charity preparing accruals accounts is expected to explain the difference its work made, describe how volunteers contribute, and set out what it plans to do next. The reserves section has also been tightened. 

Charities need to state the amounts held, explain the reasoning, compare the position against their reserves policy, and describe any steps being taken where there is a shortfall. A charity that has decided against holding reserves should record that decision and the thinking behind it.

Sustainability reporting is mandatory for Tier 3 charities, which must summarise their approach to environmental, social and governance matters. Tier 1 and Tier 2 charities are encouraged to address the subject, though it is not required of them.

What trustees should prepare:

• Review the reserves policy and how it is explained in the report.
• Check that future plans are set out clearly and connect to the charity’s strategy.
• Review how activities and achievements are described.
• Consider how impact information is gathered and recorded through the year.
• Collect volunteer numbers and describe the activities they support.
• Identify any sustainability information relevant to the charity’s tier.
• Compare the existing report against the updated guidance before the next reporting cycle.

Trustees must file the year’s accounts and annual return with the relevant public charity regulators within 10 months of the financial year end, and the Trustees’ Annual Report must be signed by one or more trustees as part of those specialised annual reports.

The Charity Commission’s guidance on preparing a Trustees’ Annual Report sets out what each type of charity must include; see charity commission guidance for further information and full details.

4. Prepare Your Financial Records and Internal Processes

Charity accounting changes affect what finance teams collect and how that information appears in the accounts. Reviewing internal processes early helps trustees find gaps well before a reporting deadline, including whether they maintain proper accounting records and accounting records that meet charity law and the charity’s governing document.

SORP 2026 brings updates across income recognition, lease accounting, provisions, contingencies, and social investments. Two areas tend to need the earliest attention. Under the new lease rules, a large share of leases will now appear on the balance sheet as a right-of-use asset with a matching liability, which changes how the balance sheet reads even though nothing about the charity’s finances has actually changed.

Income recognition also shifts, with a clearer split between exchange transactions such as service contracts and non-exchange transactions such as grants and donations. Many charities also rely on grants with specific eligibility rules and reporting deadlines, so records need to track those clearly. Fund accounting separates restricted, unrestricted, and endowment balances, and restricted funds must be used only for their stated purposes. Donated goods or services may also need a fair market value estimate when they are recognised in the accounts.

What trustees should prepare:

• Review accounting policies and procedures against the updated framework.
• Check how income is recorded and classified, how expenses are tracked by purpose, and whether records cover the charity’s assets and money where relevant.
• Compile a list of leases, including informal or verbal occupancy arrangements.
• Review records covering provisions and contingencies.
• Confirm financial records support the information the annual report now requires.
• Check the finance team has access to the updated SORP guidance.
• Set aside time for internal review before accounts preparation begins.

Trustees remain responsible for overseeing the charity’s financial reporting, so the board should be confident the finance team understands the changes and has a clear plan to apply them.

5. Create a Preparation Timeline With Your Accountant

The final step is turning the requirements into a working plan. Waiting until the accounts fall due leaves little room to resolve questions or adjust processes.

SORP 2026 applies to reporting periods beginning on or after 1 January 2026. The revised charity audit threshold and accounting thresholds apply to accounting years ending on or after 30 September 2026. Map those dates separately against the charity’s own year-end, as they will not always fall in the same reporting cycle.

What trustees should prepare:

• Confirm the next accounting period and its reporting deadline.
• Identify which changes apply to the upcoming set of accounts.
• Agree a timeline with the finance team and accountant.
• Schedule a review of accounting policies and reporting processes.
• Confirm the independent examination or audit arrangements that will apply for the particular year’s accounts, and where an examination will apply, confirm the examiner’s appointment in writing.
• Build in extra time for the first set of accounts under the new framework.
• Review the Trustees’ Annual Report before the accounts are finalised.
• Record decisions made by the trustee board.

Early preparation gives trustees time to resolve questions, update processes, and seek professional advice where needed. The 2026 charity accounting changes are a good reason to review financial reporting arrangements now. By confirming which rules apply, reviewing internal processes, and understanding the charity audit requirements that will govern the next set of accounts, trustees can work with their accountant with far greater confidence.

Prepare Your Charity Before the Next Reporting Deadline

The technical work can wait for your accountant, but the narrative requirements cannot. Impact stories, volunteer numbers and the reasoning behind reserves decisions have to be captured as the year unfolds, and nothing in month twelve recovers what nobody recorded in month three. The same thinking applies to the charity audit threshold. Falling below it removes a duty, not a decision, so talk to funders before dropping an audit rather than after. Charity accounting rewards organisations that plan a year ahead of their deadlines.

Wilds Chartered Accountants has worked with charities and their trustees across the North West for over thirty years. Our audit services cover statutory audits and independent examinations, with a named team you can speak to about which one your figures now call for. Call the Radcliffe office on 0161 723 3211, Ridehalgh on 01254 52414, or email info@wildsca.com, and we will review what the new requirements mean for your next set of accounts.

Frequently Asked Questions for Charity Accounting Changes

Who can audit charity accounts?

A statutory charity audit has to be carried out by a registered auditor, meaning a firm or individual registered with a recognised supervisory body such as the ICAEW, ACCA or ICAS. This is a narrower requirement than the one covering independent examination, where a qualified member of an approved professional accountancy body is sufficient. 

Charity audit requirements in the UK also vary by jurisdiction, so charities registered in Scotland or Northern Ireland should confirm the rules with their own regulator rather than assuming the England and Wales position applies. Whoever takes the work on must be independent of the charity, which rules out trustees, employees, and anyone closely connected to them.

When does a charity need an audit?

A charity needs an audit once its figures cross the charity audit threshold set in law. For accounting years ending on or after 30 September 2026, that means gross income above £1.5 million, or gross assets above £5 million combined with income above £500,000. The charity audit requirements in the UK are not uniform, so charities in Scotland and Northern Ireland should check the thresholds set by their own regulator. 

An audit can also be triggered outside the legal tests, most often by a governing document that requires one regardless of income, or by grant and funding agreements that specify audited accounts as a condition. Trustees should check all three before assuming charity accounting rules alone decide the answer.

How to do basic accounting for a small charity?

Basic charity accounting rests on two foundations. Open a dedicated bank account, route every donation and payment through it, and reconcile against your records monthly rather than at year-end when errors are harder to trace. Then set up a simple chart of accounts covering assets, liabilities, net assets, income and expenditure, with net assets split between restricted and unrestricted funds. 

Tag restricted income as it arrives rather than reconstructing it later, as that split feeds straight into the reserves figures your annual report now has to show. Records built this way also make external scrutiny straightforward, since UK charity audit requirements are set by income and asset levels, and a charity whose funds are already separated correctly will clear the charity audit threshold checks with far less work as it grows.

Do I need a charity audit or an independent examination?

It depends on your gross income and assets for the financial year. For accounting years ending on or after 30 September 2026, a charity audit is required where income exceeds £1.5 million, or where gross assets exceed £5 million and income exceeds £500,000. 

Below that, an independent examination applies once income passes £40,000, and a professionally qualified examiner must carry it out once income passes £500,000. An independent examination involves a more narrowly defined review of the charity’s financial statements and accounting records than an audit, with examiner checking focused on matters that may need to be raised with trustees in the independent examiner’s report.

It is less thorough than an audit and does not give a true and fair view or fair view opinion as a full audit would, so audits provide a higher level of assurance. This lighter review usually costs less than a full audit. The figures decide the duty, but funders and lenders can still ask for audited accounts even where the law does not. Wilds provides both statutory audits and independent examinations, so we can confirm which one your figures call for before you commit to either.