Preparing and reporting on accounts under the Co-operative and Community Benefit Societies Act 2014

This article looks at the accounts and independent reporting requirements for co-operative and community benefit societies and common errors that have been identified by the Financial Conduct Authority (FCA).

Introduction

The relevant requirements are found in the Co-operative and Community Benefit Societies Act (CCBS) Act 2014 which applies to:

•  Co-operative societies
•  Community benefit societies
•  Pre-commencement societies

Pre-commencement societies are industrial and provident societies registered, or treated as registered, under the now repealed Industrial and Provident Societies Act 1965.

Any new societies registered after 1 August 2014 must be either a co-operative society or a community benefit society. Switching between the two types of society is not allowed.

Societies registered under the Friendly Societies Act 1974 as working men’s clubs, benevolent societies and specially authorised societies can convert to become co-operative societies or community benefit societies. However, Societies registered under the Friendly Societies Act 1974 as friendly societies cannot convert.

The FCA is the registering authority for societies in a similar manner as Companies House is the registering authority for companies. Guidance for those involved in societies or who provide services to such entities can be found in the FCA Handbook within the sections referenced RFCCBS (Registration Function Co-operative and Community Benefit Societies).

The turnover and balance sheet numbers of the audit threshold in the CCBS Act 2014 were updated to align with the current Companies Act 2006 numbers, but the FCA Handbook has not yet been updated to reflect this. The FCA does, however, provide details of the updated audit threshold on its website as well as further annual return information, including an audit decision tool. The FCA guidance is comprehensive and useful for ICAS members providing services to such societies.

It should be noted that the audit threshold in the Companies Act 2006 will be increased via recently issued regulations which apply to financial years beginning on or after 6 April 2025. Once the revised Companies Act 2006 audit threshold changes become effective, the turnover and balance sheet numbers of the CCBS Act 2014 and the Companies Act 2006 audit thresholds will diverge.

Law Commission review of the CCBS Act 2014

The Law Commission is undertaking a comprehensive review of the CCBS Act 2014. Its public consultation closed on 10 December 2024 and a report is expected later this year.

Proposals of particular relevance to the topics covered in this article are:

•  The simplification of the reporting requirements by requiring an audit to be undertaken by a registered auditor in accordance with ISAs (UK) and Ireland only and having one external scrutiny threshold based on the current audit threshold set out below. This includes removing the separate gross income criterion for charitable community benefit societies.
•  The designation of the FCA as the principal regulator for charitable community benefit societies.
•  The removal of the exempt status of charitable community benefit societies based in England and Wales.

Please note that any reforms are for the future and in the meantime, co-operative and community benefit societies should continue to comply with the existing provisions of the CCBS 2014.

Read our full response. 

Annual returns

All entities registered under the CCBS Act 2014 must submit the following information to the FCA within 7 months of their financial year end date:

•  The annual return form (AR30).
•  A set of the society’s accounts, including where required, an auditor’s report or another independent report on the accounts.

The relevant forms can be found on the FCA’s Mutual societies forms page. These include the AR30 form and the Group accounts exemption form.

Key reminders - content of the accounts

A registered society must prepare for each year of account:

•  A revenue account for that year which deals with the society's affairs as a whole, or two or more revenue accounts for that year which deal separately with particular businesses carried on by the society.
•  A balance sheet at the year-end date.

The society’s accounts for the year must give a true and fair view of the income and expenditure of the society for the year and the state of the society's affairs as at the year-end date.

Signatories

The revenue account(s) and balance sheet must be signed by:

•  The society's secretary, and
•  two members of its committee, acting on behalf of the committee.

It should be noted that as per the above, three signatories are required and one of these has to be the secretary. Additionally, the revenue account(s) and balance sheet need to be signed separately.

Scrutiny requirements

The scrutiny requirements can be found in sections 83 to 88 of the CCBS Act 2014. These start with the premise that all accounts for co-operative societies and community benefit societies should be audited (full audit under International Standards on Audit (ISA) UK by a registered auditor but then offer certain relaxations subject to certain criteria being met). Where a full audit is undertaken the auditor’s report to the society must include the following:

•  Whether, in the auditor’s opinion, the revenue account(s) and balance sheet for the year give a true and fair view of the matters mentioned in section 80(1) to (3) of the CCBS Act 2014.
•  Whether the revenue account(s) and balance sheet comply with the other requirements of the CCBS Act 2014.
•  If the report relates to any other accounts, whether those accounts give a true and fair view of any matter to which they relate.

The auditor must also report where:

•  The society has failed to keep proper books of account and maintain a satisfactory system of control over its transactions.
•  The revenue account, any other accounts to which the report relates, and the balance sheet are not in agreement with the society's books of account.

Where a society’s constitution contains stricter external scrutiny requirements than the CCBS Act 2014, it will have to apply to the FCA for a rule change before taking advantage of any concessions.

Audit exemption

In addition to small societies (see below), other societies that meet certain qualifying conditions can avail themselves of audit exemption as set out in section 84 of the CCBS Act 2014. These qualifying conditions are set out below.

The qualifying conditions are:

•  The value of the society’s total assets at the end of the preceding year of account did not exceed £5,100,000; and
•  the society’s turnover for that preceding year did not exceed £10,200,000 (if a charity, its gross income did not exceed £250,000).

The gross income condition set for societies with charitable status is derived from the CCBS 2014 and not from charity law (the FCA Handbook incorrectly refers to turnover in this regard). Societies with charitable status should assess whether they are entitled to audit exemption based on all the legislation that applies in their particular circumstances, including the relevant charity law.

Charitable community benefit societies in England and Wales are exempt charities meaning that they are not permitted to register with the Charity Commission for England and Wales and are not subject to the audit or independent examination requirements of the Charities Act 2011.

However, exempt status doesn’t exist in Scotland or Northern Ireland, meaning that charitable community benefit societies must:

•  Register with the Scottish Charity Regulator, OSCR, or the Charity Commission for Northern Ireland if they are based in either charity law jurisdiction; and
•  comply with the applicable charity law external scrutiny requirements.

Charitable community benefit societies in England and Wales which meet the threshold for registering with OSCR under the Charities and Trustee Investment (Scotland) Act 2005 due to the extent of their presence in Scotland must also comply with the external scrutiny requirements of Scottish charity law, set out in the Charities Accounts (Scotland) Regulations 2006.

It is important to note that the criteria to determine audit exemption relate to those of the previous financial year.

Also, a resolution to take advantage of audit exemption must be passed at a general meeting at which:

•  Less than 20% of the total votes cast are cast against the resolution; and
•  Less than 10% of the society's members for the time being entitled under its rules to vote cast their votes against the resolution.

A society which meets the qualifying conditions and passes a resolution at a general meeting is not required to have a full audit. However, if the society’s income in the previous year exceeded £90,000, in lieu of an audit it must have a registered auditor issue a specific report on the accounts.

This report states, in the auditor's opinion:

•  Whether the society’s revenue account, any other account to which the report relates, and balance sheet are in agreement with its books of account.
•  On the basis of the information contained in those books of account, whether the revenue account and balance sheet comply with the requirements of the 2014 Act.
•  A report relating to the preceding year of account which states whether, in the auditor's opinion, the financial criteria for audit exemption were met in relation to that year.

If you are not a responsible individual in a registered audit firm, then you cannot issue a report of this nature.

A society cannot take advantage of any external scrutiny concessions under the CCBS 2014, if it:

•  Is a credit union.
•  Is a subsidiary.
•  Has a subsidiary.
•  Holds a deposit or has at any time since the end of the preceding year of account held a deposit (other than a deposit in the form of withdrawable share capital).
•  Is registered in the register of social landlords maintained under section 20(1) of the Housing (Scotland) Act 2010 (asp 17).

Small societies

A small society can take advantage of the exemption from audit available under the CCBS Act 2014 without the need to pass a resolution at a general meeting. However, if the society does not pass a resolution, it instead has to appoint two or more persons who are not qualified auditors (lay persons) to audit its accounts for that year. Anyone can be a lay auditor, as long as they are not an officer or employee of a society or a partner, employee or employer of any society officer or employee.

A registered society is a “small society” for a year of account if:

•  Its total receipts and payments in respect of the preceding year of account did not exceed £5,000.
•  It had no more than 500 members at the end of that preceding financial year.
•  The total assets at the preceding financial year end date did not exceed £5,000.

It is important to note that the criteria to determine the size of the society relate to those of the previous financial year.

A society which is not permitted to take advantage of any external scrutiny concessions under the CCBS 2014 (see above) cannot be a treated as a “small society”.

Group accounts

If a society has subsidiaries at its year end date, then it is required to prepare group accounts dealing with the state of affairs and income and expenditure of the society and its subsidiaries. These are required to show a true and fair view of the state of affairs and income and expenditure of the society and the subsidiaries.

The auditors report to the society on the group accounts, as to whether:

•  The accounts have been properly prepared in accordance with the requirements of Part 7 of the CCBS Act 2014 and any regulations made under it.
•  In their opinion, the accounts give a true and fair view.

Circumstances where group accounts not required

A society is not required to prepare group accounts for a year of account if, at the end of the year, it is the wholly owned subsidiary of another body corporate incorporated in Great Britain.

Additionally, group accounts need not include a subsidiary if in the opinion of the parent society's committee, and approved by the FCA:

(a)  It is impracticable, or would be of no real value to the society's members, in view of the insignificant amounts involved;
(b)  it would involve expense or delay out of proportion to the value to those members;
(c)  the result would be misleading, or harmful to the business of the society or any of its subsidiaries, or
(d)  the business of the society and that of the subsidiary are so different that they cannot reasonably be treated as a single undertaking.

To take advantage of any of the exemptions in (a) to (d) above, the society's auditors have to include in their report (group or company as applicable), a certificate to the effect that they agree with the society's committee that the following continued to apply throughout the year of account:
•  The reason given by the committee in its last opinion in respect of the relevant subsidiary to have been approved by the FCA; and
•  the grounds given by the committee to support that opinion.

Reference should also be made to the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969/1037 which provide further details on group accounts. These were originally titled The Industrial and Provident Societies (Group Accounts) Regulations 1969 but were renamed by The Co-operative and Community Benefit Societies and Credit Unions Act 2010 (Consequential Amendments) Regulations 2014.

Five common errors

The following are common errors in accounts filed by registered societies with the FCA:

1.  Incorrect number of signatories

The accounts of a society require to be signed by three individuals, one of whom must be the secretary. Also, each revenue account and balance sheet must be signed.

2.  Incorrect references to legislation

Societies should not refer to the Companies Act 2006 and its specific requirements in their accounts. Likewise, reports issued by registered auditors on the accounts of societies should not do this either. References to legislation other than the CCBS Act 2014 are only appropriate where the society is also subject to other legislative requirements e.g. where a society is also a charity.

For societies with charitable status which would be exempt from a full audit under the CCBS 2014 or eligible to disapply the qualified auditor requirement, care should be taken to ensure that they comply with the appropriate independent reporting requirements under both the CCBS 2014 and the charity law requirements relevant to their jurisdiction.

There are three charity law jurisdictions in the UK: England and Wales; Northern Ireland; and Scotland. At the moment charitable community benefit societies in England and Wales cannot register with the Charity Commission for England and Wales and do not apply the external scrutiny requirements of the Charities Act 2011. However, under charity law, any charity registered with OSCR or the Charity Commission for Northern Ireland not receiving a full audit (see below) will require an independent examination.

Independent reporting requirements under both the CCBS 2014 and charity law apply eligibility requirements to the independent reporter, whether they are a registered auditor, lay auditor or charity independent examiner.

An inability to amend accounting software is not a justification for a society or registered auditor being unable to comply with the legal requirements.

Where different pieces of legislation apply to the accounts or to the independent reporting requirements relating to those accounts, the society and the independent reporter should ensure that the strictest requirements are applied.

An audit by a registered auditor under International Standards on Audit (ISA) UK, a full audit, is the strictest form of scrutiny available on a society’s accounts even where the legislative basis for the audit arises from more than one statute. This means that a society receiving a full audit will be complying with the strictest legal requirements for its external scrutiny.

3.  Scrutiny engagements not being performed by registered auditors where this is a requirement

If a society is entitled to take advantage of audit exemption, then it must ensure that it meets the applicable criteria. Where its revenue in the previous year exceeded £90,000 but was less than the threshold for audit exemption, it will still require a registered auditor to undertake a lesser form of scrutiny than an audit.

4.  Reports on society accounts not meeting the legal requirements

The specific wording of the report is set out in the CCBS Act 2014.

ICAS members issuing a report on a society’s accounts should ensure that it complies with the wording set out in the CCBS Act 2014, appropriate for the type of report.

They should also be mindful of the message included above about complying with the strictest legislative requirements which apply to independent reporting engagements, for example, where societies have charitable status, they must also comply with the external scrutiny requirements of applicable charity law.

5.  No inclusion of share capital

All societies are limited by shares and must have share capital. Therefore, each society balance sheet must include share capital, this includes societies with charitable status.
Other useful information

Society details can be checked via the Mutuals Public Register.

Further information on the Law Commission’s review of the CCBS Act 2014 is available on a dedicated project page.