Under charity law, charities are subjected to two different forms of external scrutiny -independent examination and audit.
What is an Independent Examination of charity accounts?
An independent examination is a simple form of external scrutiny carried out by a person independent to the charity. The examiner essentially checks whether the accounts agree to charity’s underlying accounting records. And whether accounting rules and regulations applicable to charities have been followed in preparing the accounts.
An audit on the other hand, is an in-depth scrutiny where an independent auditor must also verify the correctness of underlying records. The auditor must additionally verify that accounting principle and standards have been followed when recording transactions in primary books of entry. This is done by way of sample testing of transactions and financial and accounting internal control procedures.
Most small charities do not need such in-depth scrutiny and added costs. An independent examination is a preferred alternative because it still provides trustees, funders, beneficiaries, stakeholders and the public with an assurance that the accounts of the charity have been reviewed by an independent person.
Who Needs an Independent Examination?
There are a few charity independent examination thresholds you need to keep in mind which are set out below.
Firstly, if your charities gross income is below £25,000 you do not need any form of external scrutiny.
Most charities fall is this second category. If your charities gross annual income is over £25,000 you must have an independent examination. However, the only exception to this is where an audit is required by the charity’s constitution or funders. If you are unsure, then the first thing you need to do is get hold of your constitution or grant agreement and read the provision about annual accounts. In some cases, trustees may also decide to have an audit.
Who can be an Independent Examiner for charity accounts?
Not all accountants are eligible to act as approved independent examiners. Conversely, in certain cases, not all independent examiners have to be qualified professional accountants. The trustees are responsible to ensure that a competent independent examination takes place. So, it is up to them to decide who can undertake a competent examination. Charity Commission has issued guidance for charities to help them decide who is eligible to act as an independent examiner.
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