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Charities’ audit quality questioned by UK regulator

A new study by the UK Charity Commission, has found that only around half of charity accounts reviewed met the regulator’s external scrutiny benchmark. This follows reviews of the quality of charity accounts which show that auditors and independent examiners are missing out on identifying significant failings in charity accounts.

A sample of 296 charities’ accounts have been assessed against an external scrutiny benchmark developed by the Commission to determine whether a minimum standard of scrutiny by auditors and independent examiners has been met. Compliance with the benchmark does not amount to full compliance with the requirements of the Charities SORP; the benchmark is about ensuring that the basic requirements have been met.

Failings included incomplete reporting of related party transactions; of 77 cases in which these were not properly disclosed, although in all likelihood an oversight, none were reported to the Commission by auditors or independent examiners. This raises concerns that the failure by trustees to manage conflicts of interest is also being under-reported.

Accounts reviewed by an auditor met the benchmark more frequently than those reviewed by an independent examiner. Although qualified examiners performed better, only 44% of accounts submitted by qualified examiners met the benchmark. Just 18% of unqualified examiners met the benchmark.

The regulator is working closely with ICAEW and ACCA to improve their members’ awareness of charity reporting and accounting requirements. It has passed details of accounting practitioners that failed to meet the benchmark to their relevant professional bodies so that they can assist them. The Commission may also use non-compliance with the benchmark to raise formal complaints with professional bodies.

Charity Commission head of accountancy services Nigel Davies said: “External scrutiny is an essential part of the checks and balances process that charity accounts go through and so it is disappointing that so many independent examiners and auditors appear to lack the necessary understanding of the external scrutiny framework.”

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