Firms and individuals who undertake the role of auditors or independent examiners to the charitable sector are taking note of revised guidance released by charity regulators throughout the UK.
Trustees of local charities will be well aware of the requirement for their organisation to register with the Charity Commission for Northern Ireland (‘CCNI’), and to date over 5,600 local charities have now successfully registered.
Once registered, charities must prepare annual financial statements in line with the Charities (Accounts and Reports) Regulations (Northern Ireland) 2015 and file these with the commission. Under that legislation all charities must subject their financial statements to some form of independent review, the extent of which will vary dependent on the size of the organisation.
In broad terms, the accounts of charities with income of less than £500,000 require an independent examination, and those with income greater than £500,000 require a full statutory audit.
For those that undertake the independent review however, the regulated nature of the sector means that they have obligations beyond solely reporting to the members of the organisation - and that landscape is changing.
In addition to providing their opinion to the members of the charitable organisation, charity auditors and independent examiners have a statutory duty under charity law to report matters of “material significance” to the relevant regulator as soon as they become aware of it.
A full list of the matters can be found on the websites of each charity regulator. They include instances of breaches of law or the charity’s governing documents, breach of orders or directions issued by a charity regulator or internal control and governance deficiencies.
Two new matters were added to the list in April 2017. From 1 May 2017, regardless of the financial year end date of the entity under review, an auditor or independent examiner must report to the regulator where conflicts of interest and related party transactions which have not been correctly accounted for or disclosed. They must also report any instance of a modified audit report or qualified independent examiner’s report being issued.
The list of reportable matters set out by the regulators is not exclusive, and the independent examiner or auditor is required to report any other matters that they judge to be of such a nature that they consider them materially significant. The guidance issued does not remove the duty of an auditor or independent examiner to report to any other relevant bodies where appropriate. It also doesn’t discharge them from any statutory obligations to report under other regimes, such as the Companies legislation.
It remains the responsibility of the charity trustees to maintain adequate governance procedures and internal controls to manage the charity’s operations. , They must be aware of the matters of material significance and the associated duty placed upon their auditor or independent examiner to report such matters to the regulator.