Fewer charities overall are filing accounts with a modified audit opinion, meaning that their accounts are, or may be, materially misstated, but it is a ‘particular concern’ that 40% of those that do have done so for two consecutive years, the Charity Commission has found
The regulator’s annual monitoring report says it is encouraging that the number of modified audit opinions submitted each year is low compared to the more than 7,000 charities with an income over £1m that are required to have an audit.
Its analysis shows that in 2017, 80 charities filed accounts with a modified audit opinion, compared to 97 in 2016. Of these, 32 have submitted accounts containing a modified audit opinion in both of the last two years, which the Charity Commission says is a ‘particular concern’.
The total income reported in 2017, the most recent sets of accounts reviewed, of the charities was £202m, compared with £195m in 2016.
The main reasons why auditors issued modified audit opinions continued to be inadequate accounting records and not following accounting requirements. The main accounting requirements not met concerned the valuations of properties, investments and recognition of pension liabilities.
The underlying failings fall into one or more of three categories. These are that the trustees had not kept adequate records of the charity’s transactions and/or assets and liabilities; the trustees had appointed a new auditor and the auditor had not attended the year end stock count and/or been provided with sufficient evidence to support the previous year’s closing balances; and the trustees had not obtained the professional valuations of properties, investments and/or pension liabilities required by the statement of recommended practice (SORP).
The Charity Commission provided guidance to 18 charities, where it judged that this would help the trustees to address their auditor’s concerns. In addition, the regulator engaged with a further four charities where the auditor’s concerns highlighted serious failings of which it was not previously aware and there was no indication that the trustees were taking action to address them.
The regulator says its findings have lessons for other charities, stating: ‘To minimise the risk of a modified audit opinion, trustees need to check that their charity has sound financial systems and accounting records in place, take SORP compliance seriously and work with their auditors to provide the information that they will need for their audit. We have produced a range of guidance to help trustees.’
Accounts monitoring: concerns highlighted by auditors in their audit reports 2017 is here.
Report by Pat Sweet
