Practice Note 11 (revised): the audit of charities in the UK
Christine Scott and Keith Purnell report on the FRC’s revised Practice Note 11: The audit of charities in the UK.
The Financial Reporting Council (FRC) published a revised Practice Note 11: The audit of charities in the United Kingdom in November 2017. The Practice Note was revised to reflect:
- Revisions to International Standards on Auditing (UK) (ISAs (UK)), for the audit of financial statements for periods commencing on or after 17 June 2016.
- Changes to UK accounting standards, specifically FRS 102, and the revision of the Charities SORP.
- Continuing developments in regulation and guidance issued by the UK Charity Regulators.
- Changes in relevant legislation, including charity law.
Practice Note 11 has also been updated to omit: material that merely repeats wording from ISAs (UK); and guidance that an auditor would be able to find elsewhere.
ICAS is represented on the FRC’s PN 11 Working Party which worked with the FRC to prepare the revised Practice Note. Also, the ICAS Charities Panel responded to the FRC’s consultation on the proposed Practice Note.
Main revisions
Main revisions from the previous Practice Note 11 are:
- An update of the 'Legislative and regulatory framework’ section to reflect changes across the different charity law jurisdictions in the United Kingdom (England & Wales; Northern Ireland; and Scotland). Additional detail about the legislative and regulatory framework is included in Appendix 2 ‘Charity accounting and audit requirements in the United Kingdom’ with enhanced coverage of charity law developments in Northern Ireland since the previous edition of the Practice Note.
- The inclusion of a new section on ‘Reporting matters of material significance to UK charity regulators’. Guidance on reporting to UK charity regulators had previously been linked to ISA (UK) 250 - Section B. Included within the scope of this section is new guidance issued jointly by the UK charity regulators, in 2017, on the duty of the auditor to report matters of material significance.
- The incorporation of updated material into the sections on ISAs (UK) 250 - Section A, 315, 330 and 600 which reflect the special features of charities.
- Updates to the sections on ISAs (UK) 315 and 330 to reflect changes in the financial reporting framework for charities.
- A new Appendix 1 ‘Conditions and events that may indicate risks of material misstatement’, which sets out conditions and events which may give rise to a risk of material misstatement specific to charities.
- An expanded and updated section on ISA (UK) 570 to provide more guidance to auditors on going concern. The responsibility of trustees for assessing whether a charity remains a going concern is highlighted along with the auditor's role in evaluating the trustees’ assessment. Examples of charity specific indicators of potential going concern issues are provided.
- Updates to the section on ISA (UK) 720 to provide guidance on how this standard applies to other information in the annual report, including the trustees’ annual report. The other information accompanying the financial statements is considered ‘statutory other information’. This means that auditors will be required to report on the consistency of other information with the financial statements as well as considering whether it has been properly prepared.
ISAs (UK) in full
The full titles of each ISA (UK) referred to above are:
- 250 - Section A: Consideration of laws and regulations in an audit of financial statements.
- 250 - Section B: The auditor’s statutory right and duty to report to regulators of public interest entities and regulators of other entities in the financial sector.
- 315 Identifying and assessing the risks of material misstatement through an understanding of the entity and its environment.
- 330 The auditor’s responses to assessed risks.
- 570 Going concern.
- 600 Special considerations: Audits of group financial statements (including the work of component auditors).
- 720 The auditor’s responsibilities relating to other information.
Status of the Practice Note
Practice Note 11 is intended to assist auditors in applying the requirements of ISAs (UK) and sets out the specific considerations relating to the audit of charities. It is persuasive rather than prescriptive; however, it is indicative of good practice.
The Practice Note has a revision date of November 2017, with the revised guidance taking immediate effect.
Other developments
ISA (UK) 250 – Section A has been subsequently updated for audits of financial statements for periods commencing on or after 15 December 2017. A new appendix is included, providing revised guidance on the auditor’s responsibilities in respect of money laundering, terrorist financing and proceeds of crime in the UK. The appendix supersedes the guidance included in Practice Note 12: Money laundering – guidance for auditors.
There are consequential amendments to several other ISAs (UK) which are also effective for the audits of financial statements commencing on or after 15 December 2017.
