Enhancing the credibility of your independent charity examination reports
Ten simple things that must not be forgotten.
The Charity Commission regularly examines charities registered in the UK as part of its quality control review and to ensure that public money is used for the purposes it is collected for.
In addition to its own enquiries, the Commission also relies on independently examined reports. Here we have ten simple steps which ACCA members can take to help themselves in enhancing the credibility of their independent examiner’s reports:
Before taking any engagements, inspect all the forming documents of the charity to ascertain whether it requires an audit or not. It is commonly misunderstood that a small charity never requires an audit. The charity must be eligible to have an independent examination. Charity law requires those charities with a gross income of more than £25,000 to have some form of external scrutiny of their accounts.
Issue an engagement letter, detailing all the terms and conditions, scope, GDPR and privacy policies. ACCA have updated engagement letters which can be obtained by emailing email@example.com
Make sure that you are eligible to carry out the work. An independent examiner is defined in law as 'an independent person who is reasonably believed by the charity trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts'. Being an ACCA general practitioner you are able to carry out the work if you have the necessary skills.
Additionally, ACCA members without practising certificate are allowed to do the independent examination so long as they meet all the conditions for ‘honorary work’ as specified below in ACCA's rulebook:
The activities set out in regulation 4(1)(b) shall not constitute public practice where all of the following conditions are satisfied:
(a) no fee or other benefit is receivable in consideration for the work performed; and
(b) the gross income of the entity for the year prior to the year in question does not exceed £250,000; and
(c) the member does not hold himself out, or allow himself to be held out, as being in public practice.
Ensure that you understand the operation of the charity and its purposes. Identify the internal control maintained by the charity and what accounting records are kept for all the transactions.
Make note of all the related parties, control and business partners and how the conflict of interest is handled, if there is any, and address them appropriately. Ensure that where accruals accounts are prepared that a related party note is added even where no related party transactions have been identified.
You must be fully aware of your statutory reporting requirements to UK charity regulators for ‘Matters of Material Significance’ as highlighted in Charity Commission guidance CC32. Follow the ‘Directions’ in CC32.
You must consider the relevance of all the assumptions, judgements and estimates made by the trustees of the charity while forming your own opinion.
Understand the difference between ‘must’, ‘should’ and ‘may’ as highlighted in the Charity Commission directions and guidance. You need to ensure that your report is fully compliant with these directions and good guidance is followed throughout the examination process.
Ensure that the charity accounts are fully adhering to The Charities SORP. The Charities SORP is a Statement of Recommended Practice which sets out how charities should prepare their annual accounts and report on their finances. The SORP is an interpretation of the underlying financial reporting standards and generally accepted accounting practice.
After the examination is completed, you need to provide trustees your report which is compliant with 2008 regulations. Some of the examples can be found within CC32 guidance.