Audit and independent examination

• If examination is written into your constitution you have to comply regardless of legal thresholds.
• If your charity has an income of more than £25,000 your accounts must be looked at and reported on by someone external – audit or independent examination. 
• If your charity has income of more than £1m your accounts must be audited (also if your income is more than £250,000 and your total assets are more than £3.26m).

Charity reporting and accounting: the essentials November 2016 (CC15d) has full details 

Both an audit and an independent examination are an external review of a charity’s accounts carried out by an independent person, but they are not the same thing. Accountants are rather pedantic about the terminology so tread carefully. 

What makes the difference is the statement or opinion that is provided in your accounts.

An independent examiner’s statement talks about whether:

• you have kept proper accounting records
• your financial statements comply with accounting requirements and accord with the records.

An auditor actually has to give an opinion on whether the financial statements give:

• a ’true and fair view‘ of your financial state of affairs
• have been properly prepared in accordance with proper accounting practice and relevant law.

Auditors also report by exception on whether you have kept proper accounting records, made all the right disclosures and given them all the information they required.   

It is a fairly subtle difference to an outsider, but an independent examination requires less work, and doesn’t have to be done by a regulated body so tends to be cheaper.

It is the responsibility of the trustees to find someone appropriate to scrutinise their accounts each year and to pay for the privilege.

For independent examiners, the Charity Commission guidance is that they must be ’independent and have the requisite ability and experience‘ so you don’t need an accountant to do it (unless your income is over £250,000) – the Charity Commission envisage someone like a local bank manager being suitable for small organisations. 

'Independent' doesn’t have to mean totally unconnected, just not involved in the charity’s decision-making, and not personally close to anyone who is. Say you are a choir with a member who is an accountant, they can examine your accounts as long as they don’t do the bookkeeping and are not on any of the organising committees, or related to (or particularly friendly with) anyone who is.

If you don’t know anyone suitable, ask around locally to see who other people use – you are best off finding someone with charity experience, and not all local accountancy firms have this. You could also contact the Association of Charitable Independent Examiners ACIE. 

Auditors need to be regulated, and to get good service look for a firm of auditors who have charity experience. The Charity Finance Group will be able to advise on this.

Getting ready to have your annual accounts checked

• Independent examination of charity accounts: trustees (CC31) 
• Independent examination of charity accounts: examiners (CC32)