Audit Requirements

An audit is a check that you have kept proper accounts, performed by an accountant who has been approved as an auditor by the government. In recent years the requirements have been relaxed, and it means that many small housing co-ops will not now need an external audit. In practice, many still have their accounts prepared by an accountant – it is often useful – but this will be up to the members to decide, and you may not need to use an accountant who has been approved as a registered auditor.

At the end of the financial year you must complete, and send to the registrar, an annual return. At the time of writing this is the AR30, which you can find on the FCA website and can be completed online or on paper. If you can understand and fill this in without finding it too complicated, then you might not need to employ an accountant, or may be able to find a friendly person with bookkeeping knowledge to help you with accounts and annual returns.

The figures here change sometimes. We last checked August 2022. You can find this information on the FCA website

Avoiding audit requirements

A vote must be taken every year by the members to decide whether or not to have a full audit. This resolution must be passed with a larger majority than your usual resolutions.  To avoid an audit:

• less than 20% of the total votes cast can be against the resolution
• and
• less than 10% of the members of the society entitled to vote cast their votes can be against the resolution

For example, in a small co-op of less than 10 people, any one vote against can force the co-op to have an audit. This is fair enough, since an external audit is a good way of guarding against possible fraud, and can be useful in terms of assessing how the co-op is doing financially. If you're governing by consensus anyway, this should be achievable, it just means the default is to have an audit, and it needs full consensus to stop it.

Accounts and audits are useful tools which should be valuable for the co-op’s members/tenants.

Whether you need an audit, and what type of audit you need depends on your turnover and your total assets. The turnover is all the income you get in the year, before expenses are taken out. Your assets are how much you own, including value of property, investments, money owed to you and cash in the bank.

Audit requirements you can and can't avoid

Societies:

• with turnover less than £5000, fewer than 500 members, and assets less than £5000 of value can appoint a lay auditor instead of a qualified auditor, as long as their rules permit
• with turnover less than £90,000 do not need to be audited; their accounts and annual return can be signed by the secretary and committee members. They still have to agree not to have a full audit, as discussed above.
• their accounts and annual return can be signed by the secretary and committee members. They still have to agree not to have a full audit, as discussed above.
• with turnover between £90,000 and £350,000 can agree as described above to avoid needing a full audit. They will still need a report completed by a registed auditor, but this is not as comprehensive as a full audit and so will cost less.

The following societies will need a full professional audit each year:

• with turnover over £5.6million, or assets more than 2.8million, will need a full audit whatever the co-op agrees
• registered Housing Associations in England, Wales and Scotland (currently "registered providers of social housing")
• a subsidiary of another society, or a society that has subsidiaries
• a society that holds a deposit or has done so at any time since the end of the preceding year of account (unless the deposit was withdrawable share capital)

The FCA can force any co-op to have an audit.

Lay audits

If you are a small co-op, or if you haven’t acquired property yet, you may be exempt from the auditing requirements, and simply need a lay audit (provided your rules allow it).  This means that two persons who are not qualified auditors and not members or officers of the society, or partners, employees or employers of officers can inspect the accounts and declare them to be sound and sign them.

This applies to societies with all of the following:

• receipts and payments of £5,000 or less
• no more than 500 members
• assets less than £5,000 of value

This can occur quite often. The co-op might be set up and plans for buying etc, then either fall through or take longer than expected. If your co-op has been inactive for a year, then you will probably satisfy the above conditions.

Lay auditors have to be completely separate from the co-op (no members, or relations of members), and you need at least two of them. Basically, prepare a summary of your accounts for the year and then the lay auditors should have a look at them and if necessary check things with your records for the year.

When they are satisfied that the summary is true, they should sign an ‘auditors report’ such as:

“We have audited the accounts of _____ Housing Co-op Ltd, and confirm that the above is a fair and true statement of income and expenditure for the period _____ , and of its financial standing at the end of that period, and is in compliance with the requirements of the Industrial and Provident Societies Act 1965 and the Friendly and Industrial and Provident Societies Act 1968.”

This should then also be signed by the co-op secretary and two members and sent in with your Annual Return.