Independent Examination VS Audit
Precisely what type of scrutiny is needed depends on the income and assets of the charity. Broadly speaking, an independent examination is needed if gross income is between £25,000 and £1 million and an audit is needed where the gross income exceeds £1 million. An audit will also be needed if total assets (before liabilities) exceed £3.26 million, and the charity’s gross income is more than £250,000.
Another reason you may need to have an audit is because your governing documents might say you must. But don't worry, if that is the case you can change your governing document at a trustees meeting. Don't pay for an expensive audit when you could save yourselves a lot of money and have a charity focused accountant do an Independent examination.
Charitable Ltd Companies
Ltd companies have different rules to charities when it comes to being required to have an audit. Your company may qualify for an audit exemption if it has at least 2 of the following: an annual turnover of no more than £6.5 million, assets worth no more than £3.26 million, 50 or fewer employees on average. This means there may be occasions where, although as a charitable organisation, you would not be required to have an audit as a ltd company you would have to.
Certain types of Ltd companies also have to be audited due to the work they undertake. For example a public company, a subsidiary company, an authorised insurance company or carrying out insurance market activity or a company involved in banking or issuing e-money. This sort of company would need a specialist accountant and would not be something that we would be able to take on currently.
If your charitable Ltd company is exempt from having an audit that does not mean it wont need an independent examination to be completed by a qualified accountant. This is important to remember especially if the people running the charitable company do not have much experience with charities or independent examination.
The important thing to remember is that it is the charities responsibility to make sure they can be independently examined instead of audited. We can help you through the different rules and exceptions to the rules but the final decision will rest with the charitable organisation itself. As the accountant we will of course make our own judgement internally and will always let you know if we think an independent examination is not possible.
WHAT CAN BE EXPECTED FROM AN INDEPENDENT EXAMINATION
Well the purpose of an independent examination is to provide "negative assurance ". This type of assurance from an accountant means that there has been a lower level of scrutiny than an audit. Accountants undertaking Independent examinations are only required to confirm that no evidence has been found that suggests certain things have not been done by the charity. An audit on the other hand has to build a case with evidence to prove that the accounts present a "true and fair view".
An examination involves a review of the accounting records kept by the charity and a comparison of the accounts presented with those records. It also involves a review of the accounts and the consideration of any unusual items or disclosures identified. It is important to note that verification and vouching procedures, where an item in the accounts is checked against an original document such as an invoice or a receipt, only become necessary where significant concerns are identified from the work of the examiner, or where satisfactory explanations cannot be obtained from the trustees.
LICENCE FOr Services
As a business offering services as an independent examiner, we hold a licence to practice for individual members from the Association of Accounting Technicians. Being an independent examiner comes with a responsibility to be professional, but having a licence to practice as an independent examiner from the AAT adds a level of accountability. You can view all the services I am licensed for including the licence to be an independent examiner on the AAT website.
Preparing for an independent examination - Charities
To help things run smoothly for an independent examination there are several things your organisation can do. Making sure all accounting records are easy to access and that the accounts are up to date. As an examiner it is very frustrating to be digging around piles of receipts trying to find what you need (not to mention that it takes much longer and therefore costs more.) Other things you can do to help the independent examiner include sending through your governing documents well in advance of the examination including any changes made during the accounting period.
Accounts are not the only place an examiner needs to look. Minutes of the meetings of the trustees will also need to checked to make sure that any material expenditure in the accounts has been agreed by the trustees. Sending the minutes through if you have electronic versions can also be very helpful.
Preparing for an INDEPENDENT examination - independent examiners
We will always let you know what sort of information we will need sent to us before we actually look through the accounts and accounting records. Especially if it is the first year we will be the Independent examiner for your charitable organisation we will request as much information to be sent through before hand as possible. This helps us to plan what we will be going through with the accounts and makes the onsite visit much quicker and less disturbing to your organisation.