The Charity Commission for England and Wales has issued guidance in the form of Independent examination of charity accounts: Directions and guidance for examiners (CC32) which applies mandatorily for independent examiner’s reports signed by the examiner and dated on or after 1 December 2017. This article will cover some of the key aspects of CC32 which includes three additional directions, covered below.
Charity law sets out the reporting, filing and external scrutiny obligations which trustees are required to follow. Charity law also states that a charity with a gross income exceeding £25,000 is required to have some form of external scrutiny of their accounts and the trustees may decide an independent examination is appropriate (provided that an audit is not required by charity law or any other reason).
CC32 December 2017 contains three new directions concerning conflicts of interest, related parties and the charity’s financial circumstances as follows:
Direction 2: Check for any conflict of interest that prevents the examiner from carrying out their independent examination.
Direction 7: If the accounts are prepared on an accruals basis and one, or more, related party transactions have taken place, the examiner must check if these were properly disclosed in 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 charity’s financial statements.
Guidance supporting the regulations
CC32 incorporates terminology such as ‘must’, ‘should’, ‘recommend’ and ‘may’. The word ‘must’ in the guidance means that something is a legal or regulatory requirement or duty which the independent examiner must comply with or follow when carrying out their independent examination. ‘Should’ means that guidance is best practice which the Charity Commission expects the independent examiner to consider when undertaking their examination. ‘Recommend’ and ‘may’ are used where the Charity Commission believes that the independent examiner will find useful when carrying out their work. The independent examiner will have to exercise their own judgement where a recommendation or practice is concerned.
It is important to emphasise that if the independent examiner has not followed the new directions and guidance from 1 December 2017, the Charity Commission state that the examiner will not have carried out their independent examination properly so it is important that independent examiners fully understand the guidance in CC32 December 2017.
Audit or independent examination?
Charities are required to have an audit for financial years ending on or after 31 March 2015 if either its gross income exceeds £1 million, or its gross income exceeds £250,000 and the gross assets (not net assets) exceeds £3.26 million. An audit may also be required by virtue of the governing document or other reason so the examiner needs to check other information where the charity’s gross income and gross assets are below the above thresholds because an audit may be required due to other reasons.
If the gross income for the year is £25,000 or less, an independent examination is not required, but the trustees may decide to have one if they wish.
