CCEW publishes new guidance for charity independent examiners
The Charity Commission for England and Wales (CCEW) has published revised guidance on how to carry out an independent examination of charity accounts.
Independent examination of charity accounts: Directions and guidance for examiners (CC32) updates the June 2015 edition.
New Directions
The new guidance includes three new Directions, making 13 directions, which must be followed by independent examiners of CCEW registered charities:
Direction 2
This sets out requirements for examiner independence; examiners must check for any conflicts of interest that may prevent them from carrying out the independent examination.
Direction 2 emphasises that the independent examiner cannot be the charity’s bookkeeper. However, the examiner may assist in preparing the accounts with the proviso that: the accounting records have been maintained by another person; the examiner has had no direct involvement in the day-to-day management or administration of the charity; and the trustees review and approve the accounts.
Direction 7
This requires examiners to check that related party transactions in accounts prepared under the Charities SORP (FRS 102) are properly disclosed.
Strictly speaking Direction 7 does not apply to the independent examination of receipts and payments accounts, but if such a charity makes any related party disclosures voluntarily these will need to be reviewed.
The inclusion of Direction 7 reflects CCEW concerns about the risk of unauthorised remuneration being paid to trustees or unauthorised private benefit being received by trustees.
Direction 9
This requires examiners to check whether the trustees have considered the charity’s financial circumstances when preparing the accounts. In addition, for true and fair accounts prepared under the Charities SORP (FRS 102), examiners are specifically required to consider whether the trustees have assessed the charity’s position as a going concern.
Direction 9 reflects the importance the CCEW places on the financial sustainability of charities. The Direction also highlights the conceptual and practical challenge of arriving at form or words suitable for an independent examiner to apply. The going concern concept is clearly defined in FRS 102 and the Charities SORP (FRS 102) but it is not a concept that applies to receipts and payments accounts and the Direction reflects this.
Expanded guidance
The revised guidance also includes:
- A framework for the independent examination of smaller charity group accounts for the first time.
- An expanded range of example independent examiner’s reports.
- Updated material to reflect the revised guidance published in April 2017 by the UK charity regulators for auditors and examiners about reporting matters of material significance to the charity regulators. The revised ‘whistleblowing’ guidance was issued jointly by the CCEW, OSCR and the CCNI.
- Guidance on fund accounting: Appendix 7 largely replicates Module 2 of the Charities SORP (FRS 102).
Smaller charity group accounts
For the purposes of the guidance, smaller charity group accounts, are group accounts prepared on a voluntary basis. Where there is a statutory requirement to prepare group accounts these must also receive an audit rather than an independent examination.
Independent examiner report examples
Appendix 4 of the guidance contains 12 independent examiner report examples which are listed in the table below. The list while comprehensive is not exhaustive and independent examiners must ensure that reports are tailored to the individual circumstances of the charity and comply with reporting requirements set out in the Charities (Reports and Accounts) Regulations 2008.
Independent examiner report examples
Unqualified report examples
- Unqualified report for a non-company charity preparing true and fair accounts with a gross income of £250,000
- Unqualified report for a non-company charity preparing receipts and payments accounts with a gross income of £250,000 or less in the relevant financial year
- Unqualified report for a company charity with a gross income exceeding £250,000
- Unqualified report with a matter of concern reported due to a one-off lapse in the keeping of accounting records (specifically, tailored for a Charitable Incorporated Organisation preparing receipts and payments accounts)
Qualified report examples
- Qualified report, with a matter of concern reported due to a failure to prepare receipts and payments accounts properly (N.B only non-company charities can prepare receipts and payments accounts)
- Qualified report, with a matter of concern reported, for a non-company charity with a gross income of £250,000 or less
- Qualified report, with a matter of concern reported, for a charitable company with gross income of £250,000 or less
Cross-border charity report examples
- Unqualified report for a non-company charity preparing true and fair accounts, which is also registered with OSCR
- Unqualified report for a non-company charity preparing receipts and payments accounts, which is also registered with OSCR
- Unqualified report for a charitable company, also registered with OSCR
- Unqualified report for a non-company charity preparing true and fair accounts with an income of less than £250,000, which is also registered with the CCNI
Smaller group report example
- Unqualified report for smaller charity group accounts
Where an independent examiner issues a ‘qualified’ report, this is considered to be a matter of material significance which gives rise to a separate duty to report to the CCEW and, in the case of cross-border charities, to the Office of the Scottish Charity Regulator (OSCR) or the Charity Commission for Northern Ireland (CCNI).
New checklist
For the first time, the CCEW has published a checklist (CC32a) to accompany the guidance to assist independent examiners comply with the Directions.
Implementation
The new Directions and guidance are mandatory for reports on independent examinations which are signed and dated on or after 1 December 2017. This is to allow time for examiners to familiarise themselves with the guidance. However, the CCEW is encouraging early adoption.
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