Independent examination - the alternative to an 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, for financial years beginning on or after 1 January 2016, charities with a gross income of £500,000 or less (and providing their constitution does not require it) may choose to have 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 Charity Commission for Northern Ireland, 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 Charities Act (Northern Ireland) 2008 and the The Charities (Accounts and Reports) Regulations (Northern Ireland) 2015
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. Examples of people who may be suitable to carry out the independent examination of receipts and payments accounts include, but are not limited to, bank and building society managers, and book-keepers or treasurers of other charities.
Where accounts are prepared on an accruals basis, the Charity Commission Northern Ireland, recommends to trustees that they should consider selecting a person who is a member of one of the accountancy bodies listed in section 65 of the Charities Act or a similarly skilled person, even when the charity’s income does not exceed £250,000.
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 Charities Act (Northern Ireland) 2008 and the The Charities (Accounts and Reports) Regulations (Northern Ireland) 2015 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. NICVA, in association with ACIE will be delivering specialist training on the independent examination of accruals accounts on the 23 & 24 February.
The Charity Commission for Northern Ireland has published guidance for independent examiners along with a suite of specialised guidance on the new charity and reporting requirements.
Chris Smith FCIE
Chris works for a Scottish charity while also acting as an independent examiner for a number of other charities and is a trustee of ACIE. You can contact the ACIE at [email protected] or by calling 01524 34892