The Charities Accounts (Scotland) Amendment Regulations 2025: business and regulatory impact assessment

Section 2: Engagement and information gathering

Engagement approach

Audit income threshold

OSCR’s data indicates that raising the audit income threshold in Scotland to £1 million would take 588 Scottish charities (711 when including cross-border charities) out of audit and into the Independent Examiner regime. The data also indicates that the number of charities registered in Scotland between £500,000 - £1 million is fairly stable.

Roundtable discussions were held with key stakeholders to understand the potential implications of changing the audit income threshold, including a focus on the consequences and risks of raising the threshold, with a particular emphasis on the quality of and the level of assurance provided by independent examiners. The discussions focused on the following areas:

• Accessibility: Charity accounting is a specialism with lower numbers of auditors trained in the field. The availability of auditors is not an issue confined to the charity sector; the increase to the audit income threshold for companies has led to a decrease in the number of accountancy firms being registered to undertake audit work.
• Affordability: The cost of audit varies significantly depending on the size of the charity but is higher than that of an independent examination. A 2024 report by the Quoted Companies Alliance found that the cost of audit had risen by as much as 127%. Professional membership bodies, such as the Institute of Chartered Accountants of Scotland, have warned that there is an increasing risk that some Scottish charities may not be able to secure the services of an auditor at the current threshold. This is because it is difficult for audit-registered firms to offer audit services to charities for a fee that is both financially viable for the firm and affordable to the charity.
• Proportionality: Recent enhancements to audit standards has led some to argue that the level of scrutiny and preparation required for audit is disproportionate to the size of charities in the £500,000 to £1 million bracket. The financial complexity (for example, having trading subsidiaries) of these charities has reduced compared to 2006.
• Inflation: The current threshold of £500,000 has not changed since being introduced in 2006. Accounting for inflation, this would be the equivalent to approx. £870,000 today using the Bank of England inflation calculator^[1]. This widening discrepancy has been cited by many stakeholders as a reason to increase the threshold.
• Parity: Some stakeholders have called for the threshold to be increased to £1 million to align with the regulatory regime of England and Wales. Some stakeholders have also referenced the current threshold’s increasing inconsistency with the threshold for companies (£15 million).

Fully implementing the Charities (Regulation and Administration) (Scotland) Act 2023

We prepared the following impact assessments as part of the parliamentary passage of the 2023 Act in order to support our decision making process:

• Business and Regulatory Impact Assessment
• Data Protection Impact Assessment
• Equality Impact Assessment
• Island Community Impact Assessment

The decision by OSCR to grant a safety and security dispensation will be subject to a review and appeal mechanism. OSCR’s decision can be reviewed internally and then appealed to the First-tier Tribunal under the appeal mechanism described at Chapter 10 of Part 1 of the Charities and Trustee Investment (Scotland) Act 2005 (the 2005 Act). This could have an impact on the Scottish Courts and Tribunals Service (SCTS). As such, engagement has taken place with the Tribunals and Judicial Policy Unit in Scottish Government and SCTS.

References to accounting standards

Proposals for a new edition of the Charities SORP were publicly consulted on by the SORP-making body. This is made up of OSCR, the Charity Commission for England and Wales and the Charity Commission for Northern Ireland.

Internal SG engagement / engagement with wider Public Sector

Internal SG engagement

The new safety and security dispensation could have an impact on the SCTS and as such, engagement took place with the Tribunals and Judicial Policy Unit in Scottish Government. The remainder of these regulations do not affect other policy areas within Scottish Government.

UK / Devolved Administrations

Routine meetings are held with counterparts in the UK Government and Northern Ireland Executive with regards to charity law, and the proposals for these regulations have been discussed in that forum.

Wider Public Sector

OSCR has been a key stakeholder in the development of these regulations and has provided views on the practical application of them.

The SCTS have been engaged on the new dispensation mechanism and the impact this may have on it.

International

Charity law is devolved in Scotland and it is not necessary to engage internationally on these regulations.

Business / Third Sector engagement

Audit income threshold

The roundtable discussions on the audit income threshold involved attendance from key stakeholders including professional accounting membership bodies, and third sector infrastructure and support organisations:

• Association of Charity Independent Examiners
• Association of Chartered Certified Accountants
• Charity Finance Group
• Institute of Chartered Accountants in England and Wales
• Institute of Chartered Accountants of Scotland
• Law Society of Scotland
• Scottish Charity Regulator
• Scottish Council for Voluntary Organisations
• Third Sector Interface network representative

Fully implementing the Charities (Regulation and Administration) (Scotland) Act 2023

The 2023 Act was consulted on by Scottish Government twice ahead of introduction, and by the Scottish Parliament during Stage 1 of the Bill process. Key stakeholders were also invited to Committee at Stage 1.

In 2018, OSCR submitted a paper to the Scottish Ministers with practical proposals to ‘modernise’ the 2005 Act, focused on improving trust and confidence in the charity sector and updating the existing law.

A 12-week consultation on the proposals closed on 1 April 2019, with 307 responses indicating broad support for all proposals: Scottish charity law: consultation analysis - gov.scot. However, some respondents felt that certain proposals needed further development before they could be considered and that almost all of the proposals required refinement and/or further policy development.

A Citizen Space survey asked detailed questions about six of the proposals and ran between December 2020 and February 2021 with 100 responses received: Strengthening Scottish charity law: analysis of engagement responses - gov.scot.

Targeted stakeholder events with partners took place in December 2020 and January 2021 with a mix of charity professionals, trustees, charity staff, volunteers and practitioners, including:

• the Law Society of Scotland Charity Law sub-committee, made up of practising legal professionals and academics
• OSCR charities reference group, representatives from approximately 35 charities reflecting the range and breadth of the sector
• the Scottish Council for Voluntary Organisations and the Association of Chief Officers of Scottish Voluntary Organisations jointly hosted two events with 33 attendees
• local charities took part in events held by 12 Third Sector Interfaces

During the parliamentary passage of the 2023 Act, the Social Justice and Social Security Committee undertook consultation on the proposals and invited key stakeholders to evidence sessions: Charities Regulation and Administration Scotland Bill | Scottish Parliament Website.

References to accounting standards

SORPs are sector-driven recommendations on financial reporting, auditing practices and actuarial practices for specialised industries, sectors or areas of work, or which supplement FRC standards and other legal and regulatory requirements in the light of special factors prevailing or transactions undertaken in that particular industry, sector or area of work that are not addressed in FRC standards. SORPs also address matters that are addressed in FRC standards, but about which additional guidance is considered necessary.

Proposals for a new edition of the Charities SORP were publicly consulted on by the SORP-making body. This is made up of OSCR, the Charity Commission for England and Wales and the Charity Commission for Northern Ireland. Therefore, the Scottish Government has not consulted on this.

Public consultation

These regulations do not require a public consultation. Formal and informal consultation activities are detailed elsewhere in the document.

Other stakeholders

OSCR will update guidance and promote this to its stakeholders including charities, accountants, auditors and independent examiners. We will notify relevant stakeholders once the regulations are laid in parliament.

Any decisions made by OSCR to grant a new safety and security dispensation can be reviewed internally and then appealed to the First-tier Tribunal under the appeal mechanism described at Chapter 10 of Part 1 of the 2005 Act. Consideration was given to the likely impact on the SCTS.

The existing dispensation mechanism for charity trustees has the same review and appeal process. No appeals have been made to the First-tier Tribunal in the 20 years it has been in place. As the new mechanism relates to other information that is only required in certain circumstances in charity accounts, it is not anticipated that the mechanism will be frequently used. Therefore, it is anticipated that the impact on SCTS will be nil or minimal.