What to Expect From Your Independent Examination

by | Oct 3, 2023 | Finance

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For those charities who are eligible for independent examinations (yes, there are different thresholds to be aware of – make sure to check out our post `Does my charity need an Independent Examination` for further info), it can often feel like a daunting ordeal, a form of external scrutiny with reports produced and presented to your Trustees about your charity’s performance.

However, with the right planning, preparation, and people power, the feeling of dread when the words accounts and reporting crop up no longer has to be an issue.

This post explores what you should expect from your independent examination (IE), why they’re important, and how IEs aren’t just a tick-and-done part of running your charity successfully.

Independent Examinations

Carried out instead of an audit, independent examinations offer a limited check on specific matters.

Highlighting any areas of concern, independent examiners look at how records are maintained, and if, ultimately, your accounts match the narrative provided to Trustees.

Whether you require an audit, or an independent examination depends on your charity’s gross income levels and the value of assets – check out our qualification table for further guidance.

Role of an IE

The role of an independent examiner is to be completely independent and have no connection with the charity Trustees.

For example, a person or team can’t produce the charity’s management accounts and statutory accounts and be the independent examiner, but they can produce the statutory accounts and be the independent examiner as long as another person has maintained the accounting records, and the examiner is not directly involved in the everyday management or administration of the charity.

What to expect from an Independent Examination

The independent examiner, who your Trustees instruct, will come into your charity and start by reviewing your charity’s constitution and analysing how the organisation is controlled and managed (this will include a review and analysis of Trustee minutes).

Then comes the nitty gritty: checking your accounting records and systems are up to standard.

This part of an independent examination is the most thorough and often throws up the most questions and sometimes irregularities.

Ideally, before the IE gets underway, all accounting records should be up to date, readily available, and provide basic financial information so the independent examiner can determine the charity’s current financial position.

The independent examiner will then get to work, reviewing your accounting records to check for “any significant failure to maintain records, not to identify every omission or insignificant error” – Charity Commission.

For example, checking if there have been any changes from this year to last, unexpected fluctuations, transfers to and from unrestricted funds, valuations of gifts in kind, that accounts are not materially inconsistent with accounting records, and all transactions (including Trustee expenses) are correctly disclosed in the notes of accounts with further information or evidence provided where appropriate.

Your independent examiner will also check:

  • Whether the charity’s separate funds have been accounted for and reported correctly in the accounts. (This means you need to understand the difference between unrestricted and restricted funds.)
  • The reasonableness of any significant estimates or judgements made in preparing the accounts.
  • The level of reserves, as shown in the Reserves Policy in the Trustees’ report is the actual reserves figure.
  • If the income and expenditure of the charity is consistent with the nature or scale of activities described in the report.
  • Accrual accounts are appropriate for the charity’s activities and consistent with the applicable SORP (Statement of Recommended Practice: Accounting and Reporting by Charities).
  • If Trustees have considered the financial circumstances of the charity at the end of the reporting period and how they will continue to assess the charity’s financial position as a going concern.
  • The charity’s structure, funds, and annual activities.

Reporting and Follow-up

Throughout the entire review and examination, if any areas of concern have been identified, this must be highlighted in the independent examiner’s report and brought to the Trustees’ attention.

It’s important to note that follow-up actions and responses to notes in the report are reviewed, so we advise all charities to take heed of these reports and recommendations and put strategies in place to address any areas of concern/issues.

It’s also advisable that all Trustees have a copy or access to the final report providing a paper trail and audit that your charity has complied with Charity Commission guidelines.

The purpose of an independent examination is not to scare charities or instil fear that you’re doing something wrong but rather to provide reassurance that the money and funds your charity receives are correctly accounted for. (This is important for all charities, especially if you receive grants or raise funds from the public.)

An independent examination of your charity doesn’t have to be daunting, but it does mean that your accounting records and bookkeeping must be thorough and up-to-date.

Supporting your finance function in precisely these areas, the Beyond Profit team is always on hand to help. Providing a cost-effective solution to managing everyday bookkeeping and accounts, we help to remove the stress on resources by acting as an extension to your team – check out our recent case study on OJ’s Care and our work with them on independent examinations.

Book a discovery call with us today and see how, like OJ’s Care, we can help you.

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