Top 10 Things That Keep Charity Auditors Awake at Night

When I reflect on charity audits, it’s rarely a single issue that stands out. More often, challenges arise in areas where judgement is required, documentation is incomplete, or assumptions haven’t been fully considered.

These challenges aren’t unusual; they reflect the inherent complexity of the sector and the nuances of charity accounting. It’s also why strong charity expertise, both within finance teams and among advisors, is so important.

1. Restricted funds

Fund classification remains a common area of uncertainty, particularly where restrictions are unclear or inconsistently applied.

Cost allocation into restricted funds can also be challenging, especially where the rationale isn’t fully documented or aligned with the fund’s purpose or records are not clearly maintained.

2. Income recognition

With legacies, conditional grants and performance-related funding, determining the “point of entitlement” often requires careful judgement and small differences can have a material impact on your results. Making this assessment on key income streams helps you set out what will happen so that funders understand how their funding will be treated in your financial statements – this can avoid difficult conversations and surprises down the line.

3. Trustee oversight

Governance is fundamental to a well-run charity, and in many cases the formal records reflect this. However, understanding how decisions are challenged and scrutinised in practice is critical to assessing their effectiveness.

For example, where key judgements, such as target reserves levels, going concern assumptions or significant transactions are presented to Trustees, I’ll often think about the level of discussion and challenge that underpins those decisions. In some cases, Trustees may not have been fully presented with, or may not fully understand, the critical assumptions that have been made.

4. Going concern

Forecasts and assumptions are under increasing scrutiny to support the going concern assumption.

I challenge areas where projections feel optimistic or lack sufficient supporting evidence, and I pay particular attention to the sensitivities applied and scenario planning. Cash flow can also be overlooked, but in many cases, it is more critical than the reported surplus or deficit.

5. Reliance on key individuals

In small teams it’s common for controls to depend on one individual, often with limited segregation of duties.

Where one person is responsible for multiple stages of a process, the likelihood of undetected fraud or error increases. It also means that key knowledge is concentrated in one individual rather than shared more widely.

From an audit perspective, I also consider how resilient that arrangement is. If that person were unavailable, would the organisation still be able to operate effectively?

6. Growth outpacing systems

Charities often evolve quickly. Where systems and processes don’t keep pace, I start to see reporting that is not fully aligned with operations and does not reflect the new complexities of the organisation. Without adequate information, Trustees cannot make fully informed decisions.

7. Related parties

Late identification of related parties or transactions, often first identified during the audit, can raise concerns about completeness and transparency.

In practice, this is rarely intentional, but it does suggest that processes for identifying and capturing related party relationships may not be as robust as they could be. Early discussion, supported by clear documentation, usually avoids these issues and leads to a smoother audit process.

8. Documentation

Clear evidence is essential. Where agreements or judgements aren’t well documented, it often leads to inefficiencies and avoidable uncertainty.

9. Late changes to the accounts

Adjustments are expected, but significant changes late in the process can indicate issues with preparation or underlying controls.

Practically, they also affect audit efficiency and can lead to increased costs for charities.

10. “We thought that would be fine”

Decisions made in complex areas of accounting without early engagement with your auditor can create challenging situations.

These often lead to audit adjustments, additional time and cost, and difficult conversations with stakeholders, particularly where the financial statements differ from management expectations.

Final thought

In my experience, the difference between a smooth audit and a challenging one often comes down to how early these areas are recognised and addressed.

A willingness to pause, ask questions, and sense-check decisions usually makes all the difference. With good governance, the right internal focus, and early planning and discussion with your auditor, these challenges are entirely manageable