Unless a charity has gross annual income of less than £25,000, charity law requires the annual accounts to have some form of scrutiny to maintain public trust and confidence. The external scrutiny will be in the form of an Independent Examination or an Audit.
An Independent Examination is a less onerous form of scrutiny than an Audit, however, it does provide the charity’s Trustees and the public with assurance that the charity’s accounts have been reviewed by a person independent to the charity. To be independent, the examiner must ensure the role can be fulfilled without any conflict of interest and they cannot be influenced by relationships with the charity and its trustees.
To be eligible for an Independent Examination, the charity (including any trading subsidiaries) must meet the following thresholds:
Gross annual income must be less than £1m or where gross annual income exceeds £250,000, gross assets must be less than £3.26m.
Where a charity meets the required thresholds for an Independent Examination, the Trustees must also consider whether the Governing Document of the charity requires an Audit and whether any of the Trustees or funders, have requested an Audit. In these circumstances these requirements override the thresholds and the charity must have an Audit.
The Independent Examiner is appointed by the Trustees. It must be someone they consider having the required ability, practical experience and qualifications to carry out a competent Independent Examination of the charity’s accounts. Where gross annual income exceeds £250,000, the Independent Examiner must be a member of a professional accountancy body.
The Independent Examiner must carry out an external review of the charity’s accounting records to confirm:
- that the records have been kept as required by law;
- that those records match the accounts including disclosures; and
- that the accounts comply with the Charities (Accounts and Reports) Regulations 2008.
In the case of accruals accounts, any material inconsistency between the accounts and the Trustees’ annual report, and in the case of a charitable company with the Directors’ report must be reported.
The Independent Examiner must state in their report whether any matter has come to light which gives them cause to conclude otherwise.
The Independent Examiner must also include a statement within their report if there appears to have been material expenditure or action contrary to the objects of the charity, or if they have not been provided with information and explanations they consider necessary, or if there is a material inconsistency between the accounts and the Trustees’ Report.
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 they approve the accounts.
As with Auditors, there is a statutory duty for an Independent Examiner to make a separate report to the Charity Commission, if they identify any matter relating to the activities of the charity, which is likely to be of material significance in the operation of the charity and the carrying out of its charitable objectives.
