Charities can benefit from these robust examinations – find out why.
The Charity Commission highlights that ‘Trustees, and in particular the honorary treasurer, need to know what an independent examination involves before they opt to have an examination in place of an audit. By understanding what is involved, trustees can have their accounting records, trustees’ annual report, accounts and explanations ready to assist the examiner to complete their work in a timely way.’
Examiners also need to understand the reporting requirement. We have previously highlighted some of the reporting of matters of material significance concern raised by the Charity Commission – download our factsheet or watch this webinar
The CC32 checklist provides guidance to support independent examiners, who must follow:
- Direction 1: Check whether the charity is eligible to have an independent examination.
- Direction 2: Check for any conflict of interest that prevents the examiner from carrying out their independent examination.
- Direction 3: Record your independent examination.
- Direction 4: Plan the independent examination.
- Direction 5: Check that accounting records are kept to the required standard.
- Direction 6: Check that the accounts are consistent with the accounting records.
- Direction 7: If the accounts are prepared on an accruals basis and one or more related party transactions took place the examiner must check if these were properly disclosed in the notes to the accounts.
- Direction 8: Check the reasonableness of the significant estimates and judgments and accounting policies used in accounting for the types of fund held and in the preparation of the accounts.
- Direction 9: The examiner must check whether the trustees have considered the financial circumstances of the charity at the end of the reporting period and, if the accounts are prepared on an accruals basis, check whether the trustees have made an assessment of the charity’s position as a going concern when approving the accounts.
Where accruals accounts are prepared, the examiner must ensure that the disclosures about going concern required by the applicable Statement of Recommended Practice (SORP) are made and that the trustees’ assessment of going concern is reasonable given the available information. In particular the examiner must check if any material uncertainties related to events or conditions that cast significant doubt on the charity’s ability to continue as a going concern are disclosed in the notes to the accounts.
Where either receipts and payments or accruals accounts are prepared, the examiner must consider whether the trustees have assessed what invoices, bills and commitments remain outstanding at the end of the reporting period and whether the trustees have identified if they can settle these as and when they fall due.
- Direction 10: Check the form and content of the accounts.
- Direction 11: Identify items from the analytical review of the accounts that need to be followed up for further explanation or evidence.
- Direction 12: Compare the trustees’ annual report with the accounts.
- Direction 13: Write and sign the independent examination report.
Under each of the directions it is highlighted what the examiner ‘must’ do. These are legal requirements, such as under Direction 4: Plan the independent examination, where it is stated that ‘In order to plan the specific examination procedures appropriate to the circumstances of the charity, the examiner must review:
- the charity’s constitution
- the way the organisation is controlled and managed
- whether action has been taken on any previous recommendations for improvement
- the accounting records and systems
- the charity’s structure, its funds and how fund balances changed in the year
- the charity’s activities in the year and spending and the financial risks the charity faces’.
The guidance is clear on obligations, stating: ‘In this guidance:
- “must” means something is a legal or regulatory requirement or duty that the independent examiner must comply with or must follow in the conduct of their examination.
- “should” means guidance that is good practice which the Commission expects the independent examiner to follow when carrying out their examination.
- “recommended” or “may” means a recommendation or practice that the Commission believes that independent examiners may find helpful in carrying out their independent examination. The examiner has discretion to exercise their own judgment and follow different practices where they consider that these are more suitable for the charity’s circumstances.’
Article from ACCA In Practice