Charity reporting: a warning for auditors, independent examiners and trustees
New benchmark amongst resources designed to drive up the quality of charity reporting.
A study by the Charity Commission highlighted that only half the accounts filed by charities met the requirements set by the Charity Commission.
It is very clear from the report, and also from our engagement with the Charity Commission, that failings in charity accounts need to be identified and reported on.
The Commission expects those scrutinising charity accounts to make use of its benchmark and also that trustees and those interested in charity accounts are aware of it.
The benchmark, which applies now, comprises 15 criteria, nine of which apply irrespective of whether the external scrutiny is of receipts and payments or accruals accounts. The other six criteria apply only to the external scrutiny of accruals accounts.
Criteria that apply to the external scrutiny of receipts and payments and accruals accounts:
Trustees’ annual report
For registered charities, there is a trustees’ annual report or, if a company, a combined trustees’ annual report and directors’ report
External scrutiny report
There is an independent examination report or audit report
There is an audit report if an audit is required by the charity’s size
The external scrutiny report is worded correctly with reference made to the correct legislation
There is a receipts and payments account or a statement of financial activities
There is a statement of assets and liabilities or a balance sheet
The accounts are internally consistent, ie the closing funds balance within the receipts and payments accounts or statement of financial activities is consistent with the statement of assets and liabilities or balance sheet
The accounts add up correctly
Unrestricted and restricted funds are clearly identified
Criteria that apply to the external scrutiny of accruals accounts only:
The accounts have been prepared on an accruals basis, if required by the charity’s size or because it is a company
The accounting policies note states that the accounts have been prepared under the correct Charities SORP
The notes disclose all of the required related party transactions as required by the Charities SORP
The statement of financial activities either incorporates an income and expenditure account or there is a separate income and expenditure account, if the charity is a company
Consolidated accounts have been prepared if applicable and required by the charity’s size
There is a cash flow statement, if required by the charity’s size
It is highlighted in the report that accounts reviewed by an auditor met the benchmark more frequently than those reviewed by an independent examiner.
Although qualified examiners performed better, only 44% of accounts submitted by qualified examiners met the benchmark. Just 18% of unqualified examiners met the benchmark. Clearly auditors, independent examiners and trustees will need to ensure that the report and findings are acted upon.
View our guide to the benchmark
We have reproduced the benchmark in a guide for members. If you are a trustee, please give to your examiner or auditor. If you are an auditor or independent examiner, please share with the charity’s trustees.
The benchmark highlights the high-level areas and includes the following: ‘The notes disclose all of the required related party transactions as required by the Charities SORP’.
The report highlights this, stating that: ‘Failings included incomplete reporting of related party transactions; of 77 cases in which these were not properly disclosed, although in all likelihood an oversight, none were reported to the Commission by auditors or independent examiners. This raises additional concerns that the failure by trustees to manage conflicts of interest is also being under-reported.’
It is important to remember that charity reporting requirements are different from those under company reporting preparation. The related party reporting requirement for a charity requires a statement on related parties even where no related party transactions exist.
Support from ACCA
As you will note in the report, ACCA is working with the Charity Commission on supporting our members, whether they are volunteering as trustees or working as practitioners, and ensuring that they are equipped and supported in understanding charity filing and scrutiny requirements.