- The last three BPUs (March, April and May) have all related to Covid-19. This one does not avoid the topic altogether but it is peripheral rather than the main focus.
- Last month the Scottish Charity Regulator, the Charity Commission for Northern Ireland and the Charity Commission for England and Wales jointly issued “Guidance for Independent Examiners during Covid-19 pandemic or in a time of national emergency” which can be found here: https://www.oscr.org.uk/media/3913/guidance-on-independent-examination-during-covid-oscr.pdf
- The fact the guidance was issued jointly by all three charity bodies is a small example of the co-operation that the Covid-19 crisis is able to engender. The guidance is helpful and full of common sense about how to deal with the examination of a charity’s accounts when direct access to the records and personnel involved is tricky. A little more is said about what this guidance covers at the end of this note. But first there is a general outline of what is involved in the “independent examination” of charity accounts.
The 2005 Act
- The main Act governing charities in Scotland is the Charities and Trustee Investment (Scotland) Act 2005 (“the 2005 Act”).
- Under the 2005 Act a charity must: (1) keep proper accounting records; (2) prepare a statement of account each year; (3) have that statement “audited” or “independently examined”; and (4) send a copy of the statement to the Office of the Scottish Charity Regulator (“OSCR”).
- As noted, a charity’s accounts must be either (a) “audited” or (b) “independently examined”. An “audit” is a more detailed and expensive exercise than an independent The detailed rules as to whether an audit or independent examination is required are contained in The Charities Accounts (Scotland) Regulations 2006 (“the 2006 Regulations”). In broad terms however an “audit” is only required for larger charities whose gross annual income is £500,000 or more or where the terms of a charity’s constitution specifically say that an “audit” is required.
- Older charities’ constitutions sometimes say that an “audit” is required but it may be possible to get that requirement removed if an audit would not otherwise be necessary.
What does an independent examination involve?
- As mentioned, a charity must keep accounting records and prepare a statement of account each year. But, having done that, the charity must have their accounts checked by someone who is external to the charity.
- This independent examination involves a review of the accounting records and the annual statement of account of the charity. The independent examiner considers whether the accounts: (1) are supported by the accounting records; (2) show an accurate picture of the financial affairs of the charity and (3) are prepared in accordance with the law.
- At the end of the examination the examiner will make a report to the charity trustees. This report must be submitted to OSCR, along with charity’s accounts, not more than 9 months after the end of its financial year.
Who counts as an “independent examiner”?
- An “independent examiner” is defined in the 2016 Regulations as someone who “is reasonably believed by the charity trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts.”
- For a charity with an annual gross income of £250,000 or more the independent examiner must also hold a specified professional accounting qualification. There are 14 different categories of qualification listed in the 2016 Regulations all of which count for these purposes but, of course, being a member of one of the Institutes of Chartered Accountants is the most obvious.
- Although an independent examination is not as rigorous as an “audit” nevertheless the 2016 Regulations cover a range of matters to be considered. The Scottish Charity Regulator provides a checklist for independent examiners which runs to three pages opening with the following:
“This checklist asks basic questions relevant to all independent examinations and is designed to help independent examiners plan and carry out their work. There will be other points to consider depending on the individual circumstances of the charity.”
Guidance for Independent Examiners during Covid-19 pandemic or in a time of national emergency” – issued last month
- The guidance (running to 10 pages) covers the following areas: (1) the Impact of COVID-19 restrictions on access to records; (2) access to those in management and control of the charity; (3) risk factors (e.g. “restricted funds” being used incorrectly; difficulty in maintaining financial controls due to the circumstances); (4) implications for the independent examiner’s report (e.g. do any limitations on access to records require comment in their Independent Examiner’s report); and (5) Sign off and filing of accounts – will they be able to sign off the statement of account at this time.
- Although the accounts may have been independently examined they are ultimately the responsibility of those who run the charity (“the charity trustees”). In particular, the 2005 Act imposes the accounting duties on the “charity” but goes on to say that it is the charity trustees of a charity who must ensure that the charity complies with any duty imposed on it by the Act.
Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Allyson Gilchrist: email firstname.lastname@example.org