Charity law requires those charities with a gross income threshold of more than £25,000 to have some form of external scrutiny of their accounts. The trustees may opt for an independent examination if their charity’s income is not more than £1m, or where gross income exceeds £250,000, its gross assets are not more than £3.26m, and provided an audit is not required by charity law or due to some other reason.

The revised guidance includes three new directions relating to conflicts of interest, the disclosure of related party transactions and the charity's financial circumstances.

Direction 2 sets out requirements for examiner independence; examiners must check for any conflicts of interest that may prevent them from carrying out the independent examination.

Direction 7 requires examiners to check that related party transactions in ‘SORP accounts’ (cases where charity accounts are prepared on an accruals basis) are properly disclosed.

Direction 9 requires examiners to check whether the trustees have considered the charity’s financial circumstances when preparing the accounts, and for SORP accounts whether the trustees have made an assessment of the charity’s position as a going concern.

The guidance, which updates the previous 2015 document, was subject to a public consultation which ran from June to September 2016.

Having taken into responses from a number of professional accountancy bodies, umbrella charities and a working party on independent examination, the Commission has made a number of improvements to the final publication.

These include dropping from the new direction 7 consideration of conflicts of interest and how these were managed by the trustees. The feedback was that this went beyond the role of the examiner in checking the accounts and so the requirement is now limited to the consideration of the disclosure of related party transactions where accruals accounts are prepared.

There is also a refocusing of the new direction 9 on the role of the trustees in considering the financial circumstances of the charity at the time the accounts are prepared in place of asking the examiner to consider the trustees’ assumptions concerning the financial sustainability of the charity.

In addition, the Commission has added a brand new checklist alongside the guidance to help independent examiners meet all the necessary requirements when undertaking an examination.

The guidance also includes a framework for the independent examination of small charity group accounts for the first time, as well as an expanded range of example examiner’s reports, advice on fund accounting, and guidance for examiners about helping charities with accounts preparation and record keeping.

The new guidance reflects the revised guidance published in April 2017 by the UK charity regulators for auditors and examiners about reporting matters of material significance to the charity regulators.

Nigel Davies, head of accountancy services at the Charity Commission said: ‘These new requirements and the more robust examination process will ensure that charities’ accounts are sufficiently scrutinised and that any regulatory concerns are identified as early as possible.’

The new directions and guidance are mandatory for independent examiner reports signed and dated on or after 1 December 2017. This is to allow time for examiners to familiarise themselves with the guidance. However, the Charity Commission says early adoption is encouraged.

Guidance: Independent examination of charity accounts: examiners (CC32) is here.

Consultation outcome: Consultation on updating the framework for independent examination is here.