The Charity Commission warns on scrutiny of all audit and independent examination reports where a matter of material significance has begun.

Auditors, independent examiners and trustees of charities in England and Wales, Scotland and Northern Ireland have a common statutory duty to report matters of material significance to charity regulators.

The Charity Commission has announced that it will be conducting a review of all independent examination reports or audit opinions, signed on or after 1 May 2020, which contain a qualification, modified opinion or other reporting paragraph, to confirm that a matter of material significance was also filed with the Commission. They will then be reporting their findings to professional bodies highlighting any non-compliance with the legislation by firms.

If you are an auditor, independent examiner or trustee check and re-check the accounts and reports.

Reporting of matters of material significance

The Charity Commission guidance sets out the directions to independent examiners, which must be followed in any examination. ACCA has produced a Technical factsheet which a member/firm must follow while carrying out any charity audit or independent examination.

Additional guidance is provided where an examination is undertaken during a time of a national emergency. In times of national emergency (including Covid-19 pandemic) independent examiners must also read the latest guidance when following the Commission’s directions for independent examination.

Unless the legal duty to report is relaxed by the government, the auditor or examiner must still report matters of material significance; however, where a modified opinion, an emphasis of matter, or a matter identified by the independent examiner is solely due to the exceptional circumstances of the national emergency affecting the conduct of the audit or the independent examination then this is not considered to be reportable as a matter of material significance to the charity regulator.

This is because remedying this situation is not in the power of the auditor or examiner, the preparer of the charity’s accounts, or the charity regulator. Examples of such exceptional circumstances are:

• travel restrictions preventing the auditor or examiner from verifying the existence of physical assets such as stock
• access restrictions preventing the auditor or examiner from reviewing accounting records and/or from obtaining the assurances required
• limitations of scope being identified due to the control measures imposed to deal with a national emergency.

Disclosure requirements

The accounts of a charity must include key disclosures contained in the Accounting and Reporting by Charity: Statement of Recommended Practice. As identified within the Charity Commission review, one of the areas which was not disclosed properly was related party transactions.

Related party transactions often arise in a charity and, again, care must be taken to ensure that such transactions are managed appropriately. While charities are encouraged to obtain value for money, this should not compromise quality, and at the same time a fair and transparent tendering process should be in place at the charity for ongoing supplies of goods and/or services.

Where transactions with related parties have not been disclosed, or related parties themselves have been discovered by the auditor or independent examiner and transactions have taken place with those previously undiscovered related parties, this is an indicator that the related party relationship has been mismanaged and hence will be reportable.

Charities preparing accruals (SORP) accounts must disclose:

• trustees’ remuneration and benefits
• trustees’ expenses
• transactions with those persons and entities that are closely connected to the charity or its trustees, referred to as related parties.

If there have been no transactions of each type, this fact must be stated.

Full Charity Commission monitoring findings can be accessed here