A presentation from the Association of Charity Independent Examiners (ACIE) on what is involved in an independent examination and the role of the independent examiner.
2. What is an
Independent Examination?
Form of external scrutiny of charity accounts
A statutory report to accompany the accounts
Subject to legislation and regulation:
– The Charities Act (Northern Ireland) 2008
– The Charities (Accounts and Reports) Regulations (Northern
Ireland) 2015
– Charities SORP (FRS102)
3. Role of the examiner
Has the charity kept accounting records that comply with
section 63 of the Act or if a company with the Companies Act
Do the accounts agree with those records?
Do the accounts comply with the requirements of the Act and
Regulations, or if a company the Companies Act
Is there any other information needed for readers to understand
the accounts?
4. Role of the examiner
Has the charity spent money or carried out activity out-with its
charitable purposes or the restrictions placed on some funds?
Has any information been withheld from the examiner?
If accrued accounts are prepared is the Trustees Annual
Report consistent with the accounts?
5. Can you act as a charity’s independent examiner?
1. Can the charity have an independent examination?
2. Am I independent of the charity?
3. What am I being asked to do?
4. Do I need to be qualified?
5. Do I have the required skills, experience and professional
permission?
6. 1. Can the charity have an independent
examination?
Charities can have an Independent examination if:
Gross income below £500,000
And there is no requirement for audit from:
Constitution
Other legislation
Funders or donors
7. 2. Am I independent of the charity?
Not a trustee
Not involved in the administration of the charity
Not a major donor or beneficiary
And not connected to the above by being a:
Close family member
Business partner or employee
Must be perceived to be independent
8. 3. What am I being asked to do?
Often a dual role - Prepare the accounts
- Examine the accounts
If preparing the accounts - It is on behalf of the trustees
- Accounts must be signed before
your report
If examining accounts only - Do IE while still draft accounts
9. 4. Do I need to be qualified?
Income of
charity
Independent examiner
Up to
£250,000
Anyone the trustees consider has the required skills
and experience to competently carry out an
independent examination
Exceeds
£250,000
As above plus a Fellow of ACIE or member of one of
the 10 other professional bodies recognised in section
65 the 2008 Charities Act
10. 5. Do I have the required skills, experience and
professional permission?
Knowledge of charity accounting especially “Fund” accounting
Knowledge of the appropriate legislation and regulations
Knowledge of charity itself and the charitable sector
Skills to understand the charity’s accounting records
Experience of charities of a similar size and complexity
11. Before you start
Contact the previous examiner or auditor
– Any issues you need to be aware of
– Detailed figures for the start of the year and for comparison
Letter of engagement
– Services provided
– Fee or billing arrangements
– Scope of your work and content of your report
– Your right of access to books and records of the charity
– Your entitlement to information and explanations from past and
present trustees or employees
12. 12
Before you start
If charging for services - register as a provider of financial services
Consider Money Laundering Regulations & Proceeds of Crime Act
Do they apply? – Yes if charging for financial services
Risk assess your business and new clients
Formal identification procedures for charity and key personnel
Keep records relating to client identity and risk assessments
13. Carrying out the independent examination
The Charity Commissions’ 10 Directions to independent
examiners
The Charity Commissions’ guidance to carrying out an
examination
The ACIE Independent Examination File
14. Carrying out the independent examination
Planning and preparation
Recording your work
Check can have an IE and correct type of accounts prepared
Check accounting records comply
Check accounts reflect accounting records
Check form and content of accounts
Check for unusual items or disclosures
Draw your own independent conclusion and prepare your
report
15. 15
Duty to report to the Commission or other
authorities
Proceeds of Crime Act 2002 and Serious Organised Crime and
Police Act 2005
Reporting to the Commission under section 67 of the 2008 Act:
– Mandatory If materially significant to the Commission
– Discretionary - If likely to be relevant to the Commission
16. Final sign off - Management letter
Formal completion of your agreement
If qualified report - explains why
Opportunity to make recommendations for improvements
17. Summary
Statutory appointment
Often a dual role – maintain the distinction between the two
Ensure you have the required skills, experience & qualification
Fully understand the requirements of the Act and Regulations
Plan and record your work
Maintain independence of judgment in reaching your
conclusions
18. 18
ACIE - Membership
Affiliate
Associate - R&P to £100,00
- R&P to £250,000
- R&P to £250,000 and accruals to £100,000
- All accounts to £100,000
- All accounts to £250,000
Fellow - All accounts to the legal limit for IE
19. 19
ACIE – Applying for full membership
Join as an affiliate
Review your knowledge and experience against ACIE checklist
Prepare two sets of accounts appropriate to the category of
membership you wish to apply for
If not able to carry out IE get someone else to do the IE
Complete application form with questions on theory and
practice of IE
Editor's Notes
Form of External Scrutiny – Introduced for smaller charities in 1990’s.
Less onerous than an audit, and is lighter touch with no automatic verification of vouchers, no body of evidence being built up to support an opinion on the accounts. It does however, as we shall see, involve a review of the accounting records, a comparison of those records to the actual accounts, and highlights any issues to reader of the accounts.
Provides a report to accompany the accounts that provides readers of the accounts with a degree of confidence in the picture of the charity presented by the accounts.
Both the independent examiner and the content of the report they produce are subject to legislation and regulation through the Charities Act 2008 and the 2015 Charities Accounts and Reports Regulations.
Independent examination is an important scheme designed to ensure transparency and accountability for smaller charities. It is a proportionate form of external scrutiny for smaller charities for whom a full audit would be inappropriate.
The position of independent examiner is therefore an important statutory role that must not be taken on lightly and only by someone who fully understands their role and responsibilities.
Strongly recommend that if you are doing IEs you get copies of the Act, Regulations and Charities SORP. May look daunting at first but are readable and indexed so you can find easily the bit you need.
Before you agree to be their IEer when first contacted by a charity, you need to decide whether you can be the IEer. To decide if you can act as their IEer you need to answer 5 questions. The answers to these questions will determine whether or not you can be the IEer of that charity.
When approached to carry out an IE, and before you agree, always need to ask about the income for the year in question and ask for a copy of the constitution to check that it does not require an audit.
You must not be involved in the management, control or administration of the charity– so cannot be a trustee or senior employee or anyone else involved for example the book keeper
Not connected through a family relationship – for example the parent child or spouse of a trustee or senior employee.
Not connected through a financial or commercial relationship – for example you own, control or work for a firm or partnership that provides services to the charity, or represent an organisation that funds the charity. In some cases it may be possible to put arrangements in place to ensure independence. For example by ensuring that there is sufficient distance between the people involved in providing services to the charity and the person carrying out the IE.
As well as actually being independent it is also important to be seen to be independent so not to compromise the accountability and transparency of the IE . So you need to consider whether or not you could be perceived to be not independent or be connected to a charity before taking on an appointment
The CTI 2005 Act defines connected persons and OSCR‘s guidance on independent examination for trustees and independent examiners also provides information on who would be considered connected and therefore not independent.
When someone contacts you to be their IEer it is unlikely they will say “we have prepared accounts that comply with the 2008 act and the 2015 Regulations could you examine them”. More likely to something along the lines of “can you do our accounts”. Doing the accounts can mean anything and you need to unravel what they are requesting you to do. Most charities will be asking for 2 things to be done 1. prepare the accounts from the books and records they have kept and 2 examine them. Strictly speaking IE is the second of these, but you cannot do an IE until they have a set of accounts for you to examine.
You need to be clear these are two distinct and different roles and if you are being asked to prepare the accounts as well as do the IE make sure that the accounts are agreed and signed off by the trustees before you sign your report. Your report must be signed on or after the date of the trustees signed them, never before. Obviously while you are preparing the accounts many of your IE checks will be done at the same time. But you are preparing the accounts on behalf of the trustees and the accounts must be agreed by them before you sign your IE report.
If you are being asked to examine the accounts only I would always ask, if possible, to do my work before the accounts are signed off by the trustees so that any issues you come across that may require the accounts to be changed can be done so easily. If you come across something and the accounts have already been signed off by the trustees either the accounts will have to be redrafted and agreed again or you may have to qualify your report.
To understand if you can carry out an independent examination you need to know the income of the charity as this will determine whether or not you need to be qualified.
For charities with an income up to £250,000 the IEer has to be someone who the trustees believe has the required skills and experience to carry out a competent examination of the accounts.
For charities whose income exceeds £250,000 the IEer must be someone who the trustees believe…. But also qualified by being a fellow of ACIE or a member of one of 10 other professional accounting bodies recognised in section 65 of the 2008 Charities Act.
While the trustees have a duty to appoint an IEer who has the required skills and experience to competently examine their accounts –
you as the independent examiner also have a duty to assess whether you have the required skills and experience for the type, size and complexity of the charity that has approached you.
You must only examine accounts were you consider you do have the required skills and experience to competently examine the accounts. Indeed many professional bodies, including ACIE, make this a requirement of membership through their rules or codes of conduct or ethics.
If you are a member of a professional body you need to be clear that you are authorised under the rules of you body to carry out the examination that charity.
In assessing whether you have the required skills and experience you need to consider your:
If you have answered the previous 5 questions to your satisfaction, the charity that has approached you can have an IE, you are clear what is required and that you can carry out the examination because you are independent, have the required skills and your professional body allows it, then you can proceed to formalise the arrangement by
Contacting the previous examiner or auditor, and
Confirming the engagement with a formal letter of engagement.
You need to contact the previous examiner or auditor for two key reasons:
You need to know if there are any circumstances that led to the previous examiner ceasing to be their examiner that you need to be aware of – for example their advice has been consistently ignored
You may also need detailed schedules of the figures in the previous years accounts to understand the starting position for the year you are to examine and the make up of figures for comparison are consistent.
Once you have agreed to act as the IEer for a charity there needs to be a formal record of the agreement to ensure that both parties understand the services to be provided and their respective rights and duties. This will usually be done in a letter of engagement issued by the examiner and signed by someone from the charity authorised to do so. If you are a member of ACIE a letter of engagement is a formal requirement of the ACIE Code of Ethics which also sets out what the letter of engagement must, as a minimum, cover. ACIE handbook includes a sample Letter of Engagement.
Likely to cover:
Your right of access to any books and records the charity has and information and explanations that you consider necessary to carry out your role is set out in Regulation 13. If restrictions are placed on the information to be given to you or on the records you can examine you must consider whether you can continue to act as the IEer. If member ACIE the Code of Ethics requires to withdraw from the engagement if you are not getting co-orperation from the charity.
Consider Money Laundering Regulations & Proceeds of Crime Act 2002
If you are charging for your services you will need to register as a provider of financial services with a Regulator, Financial Conduct Authority or HMRC.
You are be required to take steps to ensure that your clients are who they say they are and that they are not involved in money laundering or using the proceeds of crime.
So will need to risk assess your business – how likely is it to be involving in processing funds from crime?
And risk assess new clients, does the charity exist, are the people in charge who they say they are. Need to carry out measures or procedures to assure yourself that the client is a Bona fida charity and that the people who you deal with are who they say they are. Proof of identify and proof they are involved in the charity.
Keep records of the risk assessment and proof of identity.
Even if not charging need to assure yourself that the charity exists and that the people who have contacted you are connected with the charity. Goes back to the IE role of being the independent or 3rd assurance to the public and supporters of the charity. Funders especially rely on the IE or auditor.
See Example Client verification form
How do we carry out the actual IE?
I understand that the Charity Commission of NI will require independent examiners to follow 10 Directions when carrying out an independent examination.
I also understand that the directions and guidance on how to apply them will be available shortly and they will examiners through the work required to enable them to prepare the IE report.
ACIE has produced a work file for independent examiners working with E&W and Scottish charities that complements and expands on the guidance from OSCR and the Charity Commission. It provides both a checklist and method for planning and recording your work as you go through an examination. Currently being reviewed to include NI requirements.
In carrying out an IE an examiner must take a systemic and professional approach to their work that will involve:
Planning and preparation – gain an understanding of the charity and its activities; understand its charitable purposes; assessing whether the charity can have an IE and you can carry it out and, in the context of the size scale and complexity of the charity, what work and tests you will carry out. You will meet with the senior staff and or trustees; ask for a copy of the constitution and the previous years accounts. If you are charging for you services you will also need to comply with the Proceeds of Crime Act 2002 and the money laundering regulations so will need to get proof of the existence of the charity and its senior staff and a proportion of the trustees.
Recording your work and your findings and judgements to form a comprehensive record of the examination that will support the conclusions you draw from the examination and support your final report. These records form part of the charity’s financial records and you will need to keep them for at least 6 years.
Check can have an IE and that the correct type of accounts have been prepared (accrued if a charitable company or income over £250,000) and that the charity an have an IE (income under £500,000 and no constitutional requirement for audit)
Check that the accounting records comply with the requirements of the
Check that the accounts do reflect the underlying accounting records
Check that the form and content of the accounts complies with the
Draw your own independent conclusions from all the above and prepare your report
As an IEer need to be aware of your duties and responsibilities under:
Proceeds of Crime Act 2002 and Serious Organised Crime and Police Act 2005 if we come across anything that indicates, don’t need proof, that the charity is involved in using the proceeds of crime or money laundering we need to contact the police immediately. Must not discuss your intention with trustees or you may be guilty of an offence under the “tipping off “ regulations.
Section 67 of the 2008 Act put a duty on examiners and auditors to report certain things to the Commission. There are two duties:
1. A mandatory duty if something is materially significant to the Commission carrying out its functions to:
Start inquiries about charities
Protect charity assets
2. A discretionary duty if something is likely to be relevant to the Commission
See joint guidance from OSCR and E&W charity Commission for a fuller list and later in the year from the Commission
If you are new to IE membership of ACIE can be a useful way to increase your understanding and practice of IE.
As a member you will have access to regular information briefings, conferences and training courses, the resources section on our website and a helpline with access to experts in IE for any issues or problems you come across. You also have access to the ACIE professional indemnity insurance scheme
Full membership can also be as way of demonstrating to clients and potential clients that you do have the required skills and experience to prepare and carry out an independent examination of their charity’s accounts.
3 membership categories
Affiliate - not a full member but have access to all our services
Associate – a full member but only licensed to carry out examinations on certain types of accounts. 5 licenses, looks very complicated but allows someone who is not a practicing accountant to start on small charities and over time as they develop their skills and experience move up to bigger charities.
Fellow – a full member able to carry out examinations on all accounts up to the legal limit for IE. A Fellow of ACIE is also recognized as one of the professional qualifications to be able to examine accounts with an income over £250,000.
If you are interested in becoming a member
Join as an affiliate
Review your knowledge and experience against ACIE checklist
Prepare two sets of accounts appropriate to the category of membership you wish to apply for
If not able to carry out IE get someone else to do the IE
Complete application form with questions on theory and practice of IE