Chris Smith explains how independent examination can give charities confidence in their finances without the expensive and trouble of a formal audit
Trustees of small and medium sized charities should be aware that they do not always need to have an audit of their charity’s accounts. Instead, if their charity has an income under £500,000 and the constitution does not require an audit, they can take advantage of a simpler form of external scrutiny specifically designed for smaller charities, an independent examination (IE).
IE is a proportionate and less onerous form of external scrutiny for smaller charities. It is more appropriate for smaller charities than a costly audit, designed for large companies and carried out to national and international auditing standards by a registered auditor.
When carried out properly, following guidance from the Office of the Scottish Charity Regulator (OSCR), an IE can be a very effective form of scrutiny for smaller charities while at the same time being considerably cheaper than an audit. An IE provides trustees, supporters and potential donors with a reasonable degree of reassurance that the accounts do reflect reality and provide a sound picture of the charity’s financial position.
The work carried out for an audit enables the auditor to make a positive statement that the accounts are free from any material error or misstatement. An independent examiner on the other hand carries out sufficient work to provide a negative assurance that:
- No evidence was found of a lack of accounting records
- Nor of the accounts failing to reflect those records
- Nor of the accounts failing to comply with the 2005 Charities Act and the 2006 Accounts Regulations
- No other matter needs to be reported, such as:
There has been material expenditure outwith the charity’s purpose
The examiner has not been given all the information they require
The Trustees Annual Report is inconsistent with the financial statements
An independent examiner does not always need to be a professional accountant. The vast majority of charities have an income under £250,000 and are not companies. These charities can prepare Receipts & Payments Accounts and have them examined by someone who the trustees believe has the required skills and experience to carry out an IE. For charities preparing Accrued Accounts (all companies and others with an income of £250,000 or more) the examiner must be a member of one of 10 professional accounting bodies or a full member of the Association of Charity Independent Examiners (ACIE).
When choosing an independent examiner it is important for trustees to ensure that the examiner is qualified and competent to examine their particular charity. This can be done by asking to see examples of accounts they have previously prepared for other charities; asking if they are aware of and understand the 2005 Charities Act and 2006 Charities Accounts Regulations and which professional body they are a member of, or by appointing an examiner who is a full member of ACIE.
For more information on IE or on becoming an independent examiner see the ACIE website or the OSCR guidance for trustees and independent examiners.
Chris works for a Scottish charity while also acting as an independent examiner for a number of other charities and is trustee of the Association of Charity Independent Examiners.
