Charity reporting is no longer simply an annual compliance exercise.

For many charities, the annual report and accounts are one of the most important public accountability documents the organisation produces. They are read by trustees, funders, donors, regulators, banks and other stakeholders who want to understand not only what the charity spent, but how well it is governed, how funds are being used and whether the charity is financially sustainable.

For trustees, this means charity audit and annual reporting need to be approached with proper planning.

A well-run audit process should not feel like a last-minute scramble at the end of the year. It should help trustees and management identify reporting issues early, strengthen financial oversight and present the charity’s position clearly.

Why charity reporting expectations are increasing

Charities operate in an environment of increasing scrutiny.

Funders want to understand how their money has been used. Donors want confidence that resources are being applied responsibly. Regulators expect trustees to demonstrate proper oversight. The public increasingly expects clear reporting around impact, reserves, risks and governance.

This does not mean every charity needs lengthy or complicated reporting.

It does mean the Trustees’ Annual Report and financial statements should be clear, consistent and proportionate to the charity’s size and complexity.

For charities preparing accruals accounts under UK GAAP, the Charities SORP remains central to how accounts and narrative reporting should be prepared. The new Charities SORP 2026 applies to accounting periods beginning on or after 1 January 2026 and introduces a more proportionate tiered reporting structure.

Trustees do not need to become technical accountants, but they should understand the key reporting areas that affect their charity.

These often include:

• reserves;
• restricted and unrestricted funds;
• going concern;
• risk management;
• impact and achievements;
• future plans;
• related parties;
• internal controls;
• and consistency between the Trustees’ Annual Report and the financial statements.

An experienced charity audit firm can help trustees identify these areas early and avoid reporting gaps late in the audit process.

The Trustees’ Annual Report matters

The Trustees’ Annual Report should not be treated as a standard document copied forward each year.

It should explain the charity’s story clearly.

A good report usually helps the reader understand:

• what the charity exists to do;
• what activities it carried out during the year;
• what it achieved;
• how funds were used;
• what risks trustees considered;
• how reserves are being managed;
• and what the charity is planning next.

The report does not need to be promotional. In fact, the most credible charity reporting is often balanced, specific and honest.

If a charity has faced funding pressure, staffing challenges, falling reserves or operational change, the report should explain those matters clearly. If the charity has delivered strong impact, that should also be supported by evidence rather than broad statements.

This is where audit readiness and good reporting discipline are closely connected.

If the Trustees’ Annual Report tells one story but the accounts suggest something different, stakeholders may lose confidence. For example, if the report says the charity is financially strong but the accounts show falling reserves and cash-flow pressure, trustees should explain the position properly.

Reserves reporting needs to be more than a standard paragraph

Reserves are one of the most important areas in charity reporting.

Trustees should be able to explain:

• what level of free reserves the charity holds;
• why that level is considered appropriate;
• whether reserves are above or below target;
• what action trustees are taking where reserves are outside the target range;
• and how restricted funds affect the overall reserves position.

A generic reserves policy is rarely enough.

Funders, donors and regulators want to see that trustees have thought carefully about the charity’s financial resilience. This is especially important where the charity depends on restricted grants, short-term funding, fundraising income or public-sector contracts.

A charity audit firm can challenge whether the reserves policy is properly explained and whether the narrative is consistent with the numbers in the financial statements.

Restricted fund accounting is a common area of difficulty

Restricted funds are often one of the most challenging areas for charities.

The accounting itself can become complicated where the charity has multiple grants, funder conditions, project restrictions or income received in advance.

Common issues include:

• restricted income not being tracked separately;
• expenditure being charged to the wrong fund;
• funder conditions not being clearly documented;
• carried-forward restricted balances not being properly explained;
• and differences between internal project reports and the statutory accounts.

These issues can cause delays during the audit.

They can also affect funder confidence if the charity cannot demonstrate how restricted money has been used.

Trustees should ensure that restricted funds are monitored throughout the year, not reconstructed after year end. Good fund accounting makes the audit smoother and gives trustees better visibility over the charity’s obligations.

Internal controls are part of trustee governance

Internal controls are not just a finance-team matter.

They are part of good governance.

Trustees remain responsible for ensuring that appropriate controls are in place to safeguard the charity’s assets, manage risk and support reliable financial reporting.

In practice, this does not mean creating unnecessary bureaucracy. Many charities operate with limited resources and small finance teams.

But trustees should still ask practical questions:

• Who can authorise payments?
• Are bank reconciliations prepared and reviewed regularly?
• Are restricted funds monitored separately?
• Are grant conditions tracked properly?
• Are budgets compared to actual results?
• Are payroll and pension submissions reviewed?
• Are expenses and supplier payments properly approved?
• Are conflicts of interest and related-party transactions recorded?

Where controls are informal or heavily dependent on one person, the charity may be exposed to avoidable risk.

A good audit process can help identify weaknesses and provide practical recommendations for improvement. The auditor does not take over trustee responsibility, but audit findings can help trustees strengthen oversight.

Preparing for SORP 2026

The introduction of Charities SORP 2026 is a useful opportunity for trustees to review the quality of their annual reporting.

The tiered approach is intended to make reporting more proportionate, but trustees should still consider what changes may be needed for their charity.

Practical steps may include:

• confirming which reporting tier applies;
• reviewing the Trustees’ Annual Report structure;
• updating reserves policy wording;
• checking restricted fund reporting;
• reviewing lease accounting implications where relevant;
• improving disclosure around risks and future plans;
• and ensuring finance records support the required disclosures.

The most important point is timing.

Trustees should not wait until the audit fieldwork starts before considering SORP 2026. The earlier the charity reviews its reporting requirements, the easier it is to gather the right information and avoid year-end pressure.

What a good charity audit process should feel like

A well-planned charity audit should provide structure and clarity.

Trustees and management should understand:

• what information will be needed;
• when it will be requested;
• which areas are likely to involve judgement;
• what the key audit risks are;
• and how findings will be reported.

The audit should be independent and objective, but it should also be clearly communicated.

Trustees should be able to understand the auditor’s findings without unnecessary jargon. If there are audit adjustments, internal control points, reserves issues or reporting improvements, these should be explained clearly.

For many trustees, this is where a good charity audit firm adds real value.

Not by taking responsibility away from the board, but by helping trustees understand the financial reporting issues that require attention.

Common reporting issues charities should address early

Charity audits often become more difficult when issues are left until the final stages of the process.

Common areas to review before the audit include:

• incomplete bank reconciliations;
• unclear restricted fund balances;
• unsupported grant income recognition;
• missing documentation for expenditure;
• outdated reserves policies;
• weak explanations of going concern;
• related-party transactions not being properly recorded;
• inconsistencies between the Trustees’ Annual Report and the accounts;
• and delays in preparing schedules requested by the auditor.

Most of these issues are manageable if identified early.

They become more disruptive when trustees and finance teams only become aware of them near the reporting deadline.

What trustees should ask before the year-end audit

Trustees do not need to manage the audit in detail, but they should have enough oversight to know whether the process is on track.

Useful questions include:

• Are the accounting records up to date?
• Are restricted funds reconciled?
• Has the reserves policy been reviewed?
• Are key estimates and judgements documented?
• Are trustee minutes and governance records complete?
• Have related-party transactions been identified?
• Is the Trustees’ Annual Report being prepared early enough?
• Are there any going concern or cash-flow issues to consider?
• Has the audit timetable been agreed?

These questions help move the audit away from a reactive year-end exercise and towards a more controlled process.

The role of a charity audit firm

A charity audit firm should bring more than technical audit procedures.

It should understand the practical pressures charities face: restricted funding, stretched finance teams, governance responsibilities, reporting deadlines and trustee accountability.

A good audit relationship should help the charity:

• prepare earlier;
• understand reporting requirements;
• improve audit readiness;
• identify internal control weaknesses;
• explain reserves more clearly;
• strengthen restricted fund reporting;
• and give trustees greater confidence when approving the accounts.

However, trustees remain responsible for the annual report, the financial statements, internal controls and governance decisions. The auditor’s role is to report independently, communicate findings clearly and make practical recommendations where appropriate.

That distinction matters.

It protects auditor independence and keeps accountability where it belongs: with the trustees.

Frequently asked questions

When does a charity need a statutory audit?

Whether a charity requires a statutory audit depends on factors such as income, assets, legal form, governing document requirements and the rules applying in the relevant UK jurisdiction.

The thresholds can change, so trustees should check the latest Charity Commission guidance and take professional advice before concluding whether an audit or independent examination is required.

What is the Charities SORP?

The Charities Statement of Recommended Practice sets out how charities preparing accruals accounts under UK GAAP should prepare and present their accounts.

It covers areas such as fund accounting, income recognition, expenditure, trustees’ annual reports, reserves and disclosure requirements.

Does SORP 2026 apply to all charities?

SORP 2026 applies to charities preparing accruals accounts under UK GAAP for accounting periods beginning on or after 1 January 2026.

Charities preparing receipts and payments accounts are outside the SORP framework, although trustees should still ensure their reporting is clear and compliant with applicable rules.

What should trustees do if the auditor raises internal control weaknesses?

Trustees should consider the findings carefully, agree appropriate actions, assign responsibility and monitor progress.

Not every control point will require a complex solution. Often, practical improvements such as clearer approvals, better reconciliations or stronger review processes can make a significant difference.

How often should a charity review its reserves policy?

A charity should normally review its reserves policy at least annually as part of the reporting and budgeting cycle.

The policy should reflect the charity’s circumstances, funding model, risks, commitments and future plans.

Final thought

Stronger charity reporting is not about producing longer accounts.

It is about producing clearer, more useful and more accountable reporting.

Trustees should be able to approve the annual report and financial statements with confidence, understanding both the numbers and the story behind them.

A well-planned charity audit can support that process by identifying reporting gaps early, improving clarity and giving trustees practical observations they can act on.

At Accendo, we support charities with audit and assurance services focused on clear communication, practical recommendations and a well-managed reporting process.

If your charity is preparing for audit, reviewing its reporting under SORP 2026 or looking to strengthen trustee oversight of financial reporting, we would be happy to have an initial conversation.

This article is for general information only and should not be treated as legal, accounting or charity governance advice. Trustees should obtain specific advice based on their charity’s circumstances.