Following failures of governance at charities such as the Kids Company, the Charity Commission has issued a consultation on changes to guidance on the external scrutiny of charity accounts and the introduction of a simpler format for the examiner’s report to improve transparency
The proposals set out in the Directions and guidance for independent examination, CC32, includes proposals to revise the rules on examiner independence, conflicts of interest and disclosure of related party transactions, financial sustainability and going concern; and new simpler guidance for each measure.
The wide-ranging consultation also sets out plans to extend independent examination to consolidated (group) accounts; a revised, simpler format for the examiner’s report and changes to the reporting of matters of material significance.
In recognition of the increasingly complex nature of charity accounting rules and compliance, there is also revised guidance on the reporting of ‘relevant matters’ and the adoption of a plain English approach which reinforces the message that the guidance is deemed to be expected practice, not simply recommended practice.
The decision to consult on the external scrutiny of charity accounts resulted from changes to the thresholds for audit and the preparation of consolidated group accounts; and the UK charity regulators’ consultation on matters of material significance that must be reported to regulators, as a result of the compliance and governance issues which lead to the collapse of the Kid’s Company charity in 2015.
Currently all charities with an income over £25,000 must have some form of external scrutiny, an audit or independent examination. Those charities with income between £25,000 and £1m may have an independent examination – this covers around 50,000 charities of the total 62,000 required to comply with external scrutiny.
Independent examination provides a more limited and lower cost form of assurance of the accounts of a charity compared to a full audit.
Nigel Davies, head of Accountancy Services at the Commission, said: ‘Independent examination is an important form of external assurance to trustees, to the commission and to those using charity accounts.” He added, ‘An update to the framework is needed. We want your views on whether our proposals will improve the independent examination framework and so maintain the confidence of trustees, donors and the public in the accounts of smaller charities.’
The new rules are set to come into effect for reporting periods ending on or after 31 March 2017.
The consultation closes on 30 September 2016.
Full details on the Charity Commission Invitation to Comment and the exposure draft of the Directions and Guidance are available here