The revisions to Practice Note 11, which are best practice guidance, reflect:

• revisions to International Standards on Auditing (UK) (ISAs (UK));
• changes to UK accounting standards (new UK GAAP - FRS 102) and the revision of the Charities SORP;
• continuing developments in regulation and guidance issued by UK charity regulators, including the Charity Commission; and
• changes in relevant legislation.

The FRC stresses that the legislation requires auditors of both charitable companies and non-company charities to report on the consistency of the information given in the trustees' report with the financial statements, and these rules apply to all charities.

Practice Note 11 applies to the audit of financial statements prepared in accordance with the Charities Statement of Recommended Practice (FRS 102) (Charities SORP).

Whilst this Practice Note is intended for the audit of financial statements of charities prepared on an accruals basis, some smaller charities that prepare receipts and payments accounts may be required to have an audit by their governing document or another enactment.

The guidance in this Practice Note can be adapted for the audit of receipts and payments accounts accordingly.

It does not apply to the audit of charities preparing their financial statements in accordance with other specialist Statements of Recommended Practice (SORPs) (eg, charities which are registered social housing providers or higher and further education institutions3 ).

Appendix 1 is a new addition which pulls together the conditions and events that may indicate risks of material misstatement which were previously interspersed through the Practice Note, which may be of particular relevance to charities. The introductory paragraph to the Appendix clearly states that not all conditions and event are relevant to every audit engagement.

Despite calls for more clarity on auditing related parties and gift aid distributions, the FRC rejected calls to amend current guidance, and also removed illustrative examples, referring preparers to examples in ISA (UK) 700 instead.

The FRC stated: ‘The FRC is concerned that any illustrative example statement of trustees' responsibilities may not be appropriately tailored for the individual circumstances of each charity. Accordingly, the FRC has not reinstated these examples.’

The Practice Note has been developed with input from an expert working group comprising audit practitioners, charity regulators, and representatives of charities.

The FRC has completed an impact assessment for the proposed revised PN 11 and has not identified any additional costs resulting from the revised guidance.

The revisions were issued in response to recent well-publicised failings of certain charities that have been investigated by the Public Administration and Constitutional Affairs Select Committee, and the Public Accounts Committee (PAC).

FRC Practice Note 11 (Revised) The audit of charities in the United Kingdom, issued 16 November 2017.

FRC Feedback Statement and Impact Assessment: The Revision of Practice Note 11

By Sara White