Moving from audit to independent examination: what to expect

Recent increases to the charity audit thresholds mean that many charities which previously required a statutory audit may now be eligible for an independent examination instead.

As a result, trustees are increasingly asking what an independent examination involves and how it differs from an audit.

What is an independent examination?

An independent examination is a form of external scrutiny available to charities that do not require a statutory audit.

Unlike an audit, an independent examination does not provide an opinion that the accounts give a “true and fair” view. Instead, the examiner reviews the charity’s accounting records and annual accounts to identify whether there are any matters that should be brought to the attention of readers.

Independent examinations have formed part of the charity reporting framework for many years and provide an appropriate level of external scrutiny for many small and medium-sized charities.

What does the examiner do?

The examiner reviews the charity’s accounting records, annual accounts and supporting information to assess whether:

• Proper accounting records have been maintained;
• The accounts are consistent with those records;
• The accounts comply with the relevant legal and accounting requirements; and
• There are any matters that should be disclosed in the examiner’s report.

The examiner will also discuss any unusual transactions, significant movements or accounting issues with management and trustees where appropriate.

If concerns arise during the review, additional information and explanations may be requested before the examination can be completed.

What information will be required?

Although an independent examination involves fewer procedures than an audit, the examiner will still require access to appropriate accounting records and supporting documentation.

Where an accountant prepares the annual accounts and also undertakes the independent examination, much of the information requested may be similar to that previously provided for an audit. This often includes:

• Accounting records and bookkeeping reports;
• Bank statements and reconciliations;
• Payroll records;
• Details of grants, donations and other significant income streams;
• Supporting schedules for debtors, creditors and other balance sheet balances;
• Information relating to restricted and designated funds; and
• Trustee minutes or details of significant decisions and transactions.

The quality of the charity’s records remains important. Clear accounting records and well-maintained schedules help ensure the examination can be completed efficiently and without unnecessary queries.

How does it differ from an audit?

The primary difference is the level of work performed.

A statutory audit involves detailed testing of transactions and balances, risk assessment procedures and the gathering of evidence to support an audit opinion.

An independent examination is a more focused review of the accounting records and accounts. While the examiner will ask questions and review supporting information, the work is generally less extensive than that carried out during an audit.

As a result, the process is often quicker and less disruptive for trustees and finance teams.

What are trustees responsible for?

An independent examination does not reduce the trustees’ responsibilities.

Trustees remain responsible for:

• Keeping adequate accounting records;
• Safeguarding the charity’s assets;
• Maintaining appropriate financial controls;
• Preparing annual accounts; and
• Providing the examiner with the information and explanations needed to complete their work.

The examination provides independent scrutiny of the accounts, but responsibility for the underlying records and financial management remains with the trustees.

Conclusion

For charities that are eligible, an independent examination offers external scrutiny without the level of testing associated with a full statutory audit.

However, it should not be viewed as a simple sign-off exercise. Examiners still require accurate accounting records, supporting documentation and clear explanations of significant transactions and balances.

In our experience, the most efficient independent examinations are those where reconciliations, fund records and supporting schedules have been prepared before the accounts process begins. Good preparation helps minimise queries and keeps the reporting process on track.

How can we help?

Whether your charity is preparing for its first independent examination or looking to understand what an independent examination will involve in practice, our experienced charity team can help. We regularly support charities with both accounts preparation and independent examinations, helping trustees meet their reporting obligations while ensuring the process runs as efficiently as possible.

To discuss your charity’s requirements, please get in touch with a member of our team.