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Does My Charity Need an Independent Examination?

by | Mar 8, 2022 | Emma Willder

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Charities of all shapes and sizes are 100% accountable for the funds they receive and how and where this money is spent.

As such, you must keep accounts in good order, and to the required standard, i.e., they must be up to date, readily available, and provide the essential financial information required.

In most instances, small to medium-sized charities will require an independent examination rather than an audit, where a light touch overview of accounts is conducted by an external examiner who will check over specific matters only.

Below we’ve pulled together the who, what, when, and why of independent examinations for charities.  Providing further clarity and helping to determine if you need an independent examination or an audit. 

If you have any further questions or if you would like any additional information the team at Beyond Profit is always on hand to help.

‘What

Let us start by saying an independent examination is more than just checking numbers and ticking a box.

Similar to an audit, an independent examination is a form of external scrutiny to ensure that everything, and we mean, everything, is accounted for.

However, the difference between an independent examination and an audit is that an independent examiner highlights any areas of concern, offering a limited check on specific matters. In these instances, the examiner is not checking for every accounting omission or error, providing an opinion on the accounts, like in an audit, but rather checking for any significant failings to maintain records.  

Ultimately, examiners will compare the narrative of the trustee report to the figures in the accounting period, reporting on any areas of concern in the Independent Examiners Report.

Due to the light-touch approach, an independent examination will cost less than an audit, with the examiner ultimately reviewing:

  • The Charity’s constitution
  • The way the organisation is controlled/managed
  • Any actions taken on previous recommendations
  • Accounting records and systems, if there have been any changes from this year to last, material items, unexpected fluctuations, or inconsistencies with the financial information
  • If trustees have considered the financial circumstances of the charity at the end of the reporting period
  • The charity’s structure, its funds, annual activities, spending, and
  • Any future financial risks.

You should expect your independent examiner to look at transfers to and from unrestricted funds, valuation of gifts in kind, accounts that do not match records, estimates resulting from transactions not fully recorded in the accounting records, and any other areas of concern.

Areas of concern can include dishonesty, money laundering, criminal activity, failure to manage conflict of interest appropriately, and more. You can find more HERE.

‘When

Do I need an independent examination or an audit?

  • If your charity has income less than £25,000, there is no need for external scrutiny.
  • If your charity’s income is over £25,000, then it is the Trustees’ responsibility to arrange an independent examination of the charity’s accounts.
  • If your charity’s income is over £250,000, an independent examination should be carried out by a qualified accountant.
  • For all charities operating at > £1m, an audit must be carried out.

(Check out our qualification table to see what you need and when you need it.)

Points to note:

Trustees are legally responsible for the charity’s management and administration, where decisions should be made in the charity’s best interests.  

It is also the trustees’ responsibility to prepare annual reports and accounts. Filing reports and accounts within nine months of year-end with Companies House[1] and ten months with the Charity Commission.  Trustees must file the examiner’s report with the Commission alongside the annual report and annual accounts.

Trustees will work with the examiners to resolve any concerns highlighted in the Independent Examiners Report throughout the year.

‘Why

If your charity’s income exceeds £25,000, an independent examination is required. However, you can also volunteer for an independent examination, especially if your charity’s constitution states or if you’re applying for external funding.

You might choose an independent examination to provide clarity and peace of mind to all stakeholders, including trustees, volunteers, beneficiaries, funders, and the wider public, etc.

External scrutiny of your accounts and reports gives independent reassurance to stakeholders that the charity’s money has and is correctly accounted for, it is spent on servicing the charity’s mission and vision, and correct accounting records are kept, i.e., the funds of the charity are correctly identified, and for accrual accounts, they comply with SORP (Statement of Recommended Practice): Accounting and Reporting by Charities.

Independent examinations help keep your accounting records high and to the required standard. 

Consistency is key, that and the notion that everything is relative.

‘Who

It is the responsibility and legal duty of the trustees to appoint an appropriate person to carry out an independent examination.  

This `person` or `persons` should be an individual or company wholly independent of the charity, who has the skills, experience, competence, and ability to carry out a thorough examination.

Independent examiners should:

  • Have the expertise and experience working with charities to make reasonable judgements
  • Have no conflicts of interest
  • Be independent of the charity (note: they can be supporters as long as there is no close relationship, and they are not involved in the day-to-day administration).
  • Have a sound understanding of accounting principles and standards; however, they are not required to be a member of an accountancy body.
  • Understand key governance and reporting requirements specific to charities.
  • Perform to the high standard of the Commission.

You can find a complete list of examiners’ responsibilities HERE.

You can also find professional examiners online through the Association of Charity Independent Examiners (AICE).

A final note

For small and medium-sized charities navigating governance and accounting can be a minefield.

Our recommendation…..you need to work closely with your trustees and outline clear roles and responsibilities from the outset.

To answer the question, “does my charity need an independent examination?” Yes, if your charity has a recorded income of £25,000 or more, then your trustees should look to instruct an independent examination of your accounts and reports.  Providing transparency and independent reassurance independent examinations can provide stakeholders with peace of mind that charity funds are spent in the most appropriate way.

If you’re looking for reliable, expert, professional accountancy support, ensuring that your accounts not only meet but exceed the required standard, speak to a member of the team at Beyond Profit today. We’re always on hand to help; email us at hello@beyondprofituk.co.uk or call us on 01204 582 104.


[1] Where your charity is registered with both Companies House and the Charity Commission

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