Charity Commission to take hard line over material reporting

Two auditors have been reported to their professional body in the wake of the Charity Commission’s follow-up report on auditors’ compliance with the requirements for reporting matters of material significance, with the regulator warning it may take similar action without prior warning in future

In February 2018 a Charity Commission review found that only 28 reports had been submitted by auditors, compared with the 114 audit opinions issued in the six months between May to October 2017 that contained reportable matters of material significance.

In response, it wrote to the auditors of the charities for which it had not received the required report, reminding them of their responsibility to report a matter of material significance and asking them to explain why they had not done so.

The Charity Commission also wrote to the auditors of a further 14 charities that submitted sets of accounts with a reportable opinion, but the audit report did not contain the date of the opinion, meaning it was not possible to ascertain whether the audit report filed was the final version.

Most replied, citing a variety of reasons for not having reported at the time, including expecting to issue their report before 1 May 2017, when the new requirement was introduced, but then completion of the work had been delayed.

Others said they had believed that the new guidance applied to audits of accounting periods ending on or after 1 May 2017, or that they had relied on checklists or other technical material which had not been updated for the change in guidance, or that they considered that the issue highlighted in their audit report did not merit bringing to the Commission’s attention, or had not realised that emphasis of matter paragraphs are reportable.

Twelve auditors failed to respond, nine of whom were contacted and produced a report when requested, while one had had their practicing certificate withdrawn in January 2018.

The remaining two declined to file a report despite being contacted in writing and by telephone and so the Commission has taken the initial steps to refer these cases to their professional body for their consideration.

The UK charity regulators have committed to improving their guidance on reporting matters of material significance to encourage better auditor reporting, and the Commission intends to introduce an online form for auditors to complete when they report a matter of material significance.

In future the Commission says intends to refer non-compliant auditors and independent examiners to their professional body without prior notification. Work is also continuing on developing a formal reporting framework with professional bodies to share information on trends in reporting, including those of poor practice by their members.

Nigel Davies, head of accountancy services at the Charity Commission said: ‘Auditors play a vital role in helping us to raise standards of accountability and transparency within the charity sector. It is so disappointing that we have had to follow up directly with so many auditors and progress two referrals to professional bodies.

‘We look to work closely with the accountancy profession to increase awareness and compliance by auditors with their reporting duties. I expect to see this resulting in a more proactive approach to reporting in future.’

Follow up review of reporting of matters of material significance by auditors is here

Report by Pat Sweet

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