the requirement for auditors to report to the appropriate charity regulator when they have given a modified audit opinion.
The accounts monitoring review by the Charity Commission into a number of charities who received modified audit opinions from auditors showed a lack of evidence from the accounting records in 50 charities while 45 were not compliant with the SORP.
The most common reason for non-compliance was incorrect valuation of their property or investment assets. The Commission has stated that when analysing with trustees the reasons for non-compliance it found that ‘the trustees of several of the charities that had not complied with the SORP stated they did not consider that obtaining professional property or pension liability valuations was a good use of charitable funds'.
The view of the Commission is clear and it states that it ‘does not consider this to be an acceptable reason for the charities’ non-compliance'.
ACCA’s Charity Finance Conference takes place on 10 October and opens with a session on good governance. The Charity Governance Code issued in the summer has been laid out with recommendations for larger and smaller charities, making use by both easier.
One of the most talked about recommendations is that larger charities will have an external evaluation of the board’s effectiveness every three years. The Code recommendation states:
‘The board reviews its own performance and that of individual trustees, including the chair. This happens every year, with an external evaluation every three years. Such evaluation typically considers the board’s balance of skills, experience and knowledge, its diversity in the widest sense, how the board works together and other factors relevant to its effectiveness.’
Certain recommendations apply to both smaller and larger charities, for example the ‘apply or explain principle’ where a trustee has served over nine years. For both the recommendation is:
‘Trustees are appointed for an agreed length of time, subject to any applicable constitutional or statutory provisions relating to election and re-election. If a trustee has served for more than nine years, their reappointment is
subject to a particularly rigorous review and takes into account the need for progressive refreshing of the board
explained in the trustees’ annual report.’
Auditors (and independent examiners) are also under scrutiny with the charity regulators agreeing on UK-wide matters that must be reported to them. The three UK charity regulators require auditors to report:
if an auditor has concerns regarding a charity’s accounts and issues a modified audit opinion report or qualified independent examiner’s report
where an auditor has concerns that conflicts of interests or related party transactions have not been properly managed or declared.
The guidance issued by the regulators includes checklists but also warnings. The regulators are clear that the guidance applies to auditors and independent examiners of charity accounts, and that it is designed to highlight their legal responsibility to report significant matters in accordance with the applicable law.
They cite the laws as section 67 of the Charities Act (Northern Ireland) 2008, sections 156 and 159 of the Charities Act 2011, and section 46 of the Charities and Trustee Investment (Scotland) Act 2005.