Independent Examination
In short
Independent examinations offer a less onerous alternative level of scrutiny to an audit of a charity’s year end financial statements, at a more reasonable price. Broadly speaking, a charity can take advantage of an independent examination if its annual income in the year is under £1,000,000 (but see in more detail below).
JS2 has a specialist knowledge of the accounting requirements of the voluntary sector and are ideally placed to provide such an examination – either as a standalone exercise or in conjunction with preparation of the year end financial statements. John Speed is qualified to perform independent examinations of all charities in England & Wales as is a full member of the Association of Charity Independent Examiners.
For more detail, please contact us.
What is an independent examination?
An independent examination is an alternative to a statutory audit for smaller charities. First introduced in the Charities Act 1993 (now consolidated into the current Charities Act 2011), the aim was to ensure small charities were not required to have a costly and onerous audit of their statutory accounts each year, while still being subject to some external scrutiny.
The criteria to take advantage of an independent examination has gradually increased over time. It was last amended in 2015 (to include, broadly speaking, all charities with an income of under £1,000,000) in response to a parliamentary review of the Charities Act by Lord Hodgson.
Who is eligible for an independent examination?
In England and Wales, a charity is entitled to choosing an independent examination if it:
- is registered with the Charity Commission (even if it is also a registered company), or excepted from registration with the Charity Commission
- has total income in the year of under £1,000,000 and net assets at the year end of under £3,260,000 or:
If net assets at the year end are over £3,260,000, has total income in the year of under £250,000
- is not required to have a statutory audit by its governing documents (usually Trust Deed or Articles of Association)*
- is not required to have a statutory audit by a funder
* Governing documents can usually be fairly easily amended to remove the audit requirement if this exists. Where any governing document predates the introduction of Independent Examinations in 1993, any ‘Audit’ requirement can be read to include the alternative of Independent Examination.
The Charity Commission has produced a flowchart to help determine if your Charity is eligible for Independent examination here.
Charities with an income not exceeding £25,000 are not required by law to have an Independent Examination, but may still elect to do so.
What are the differences between statutory audit and independent examination?
Statutory audits are governed by International Standards on Auditing, which require more rigorous testing and controls reviews than independent examinations (which are undertaken using the Charity Commission’s specified ‘Directions’). For example, an audit will require that year end bank balances are confirmed by the bank directly, rather than by reviewing bank statements.
As a result, for an audit, the reviewer produces a positive statement of assurance – that the statutory accounts show a true and fair view (based on there not being any ‘material’ errors). By contrast, an independent examiner’s report uses a ‘negative assurance’ – that, arising from the more limited form of scrutiny undertaken, nothing in the accounts appears to be wrong. The conclusion of an audit includes a report for the attention of management, which should highlight findings and recommendations arising from the work undertaken. Such a report is not required under an independent examination engagement. However, the additional scrutiny of audit means that it is usually substantially more expensive and time consuming, meaning charities that take advantage of an independent examination can spend more time and money on their charitable objects.