Charities: A Guide to Independent Examinations

Introduction

We at Perrys pride ourselves on our work with many charities, helping them fulfil their reporting requirements with the Charity Commission. These include performing an independent examination, a form of scrutiny of the charity accounts, aimed at smaller charities.

An independent examination of the accounts (or financial statements)  is required where a charity’s income exceeds £25,000 but is below £1,000,000 (or below £250,000 if gross assets exceed £3.26m). This is regardless of whether a charity prepares accounts on a Receipts and Payments (R&P) or Accruals basis.

Purpose

The purpose of an examination is to give the charity’s supporters, beneficiaries and the wider public, assurance that the charity has kept proper accounting records, and that the financial statements are consistent with those records and comply with regulations.

Independent examination is a ‘lighter touch’ scrutiny involving the examiner checking for specific matters only. Unlike audit, examination does not aim to confirm that the accounts show a “true and fair” view, which is what an audit would do. Examiner’s tasks are defined by the Charity Commission in their Directions. In total, there are thirteen directions if the accounts are prepared on accruals basis. Some small sections of the work will not apply if the accounts are prepared on R&P basis.

Examiner

The examiners must have the requisite ability and practical experience to carry out a competent examination of the accounts. They must also be independent of the charity, with no close relationships or financial interests that could compromise their objectivity. The Charity Commission provides guidance on the appointment and role of independent examiners.

Examination process and reporting

The examiner will plan their work according to the Charity Commission directions. The work will include the following: 

• Reviewing the charity’s governing document (trust deed, constitution, memorandum and articles)
• Reviewing minutes of trustees’ meetings
• Vouching a sample of income and expense transactions, reviewing year end bank statements and others.

The examiner will then issue a report stating that the examination has been completed. The examiner must report on whether they have reasonable cause to believe that the accounts are not in accordance with the charity’s governing document, do not accurately reflect the charity’s financial position, or do not comply with the relevant accounting standards. The report must be filed with the Charity Commission, along with the charity’s annual report and accounts.

Benefits for charities

The examination provides several benefits to the trustees and the charity. It is an opportunity for the trustees to engage with the production of the accounts, consider various aspects of the financial management and charity’s strategy. The charity itself appears more transparent and accountable to prospective donors, the public and other stakeholders.

Conclusion

In conclusion, independent examination is a vital process for charities, providing an independent scrutiny of their accounts and ensuring transparency and accountability. The requirements for independent examination include the appointment of an independent examiner, the preparation of the charity’s accounts, and the filing of the examiner’s report with the Charity Commission. The examination offers an opportunity to the charity to show it is transparent and accountable and increase the public’s and potential donors’ trust in its activities.

If you are involved with a charity which needs help with the Charity Commission filing requirements, feel free to contact Kate Zell-Smith at Perrys Tonbridge office.