The role of independent examiners in the accountability of UK charities

Abstract

External assurances on published accounts are central to the accountability of charities in the UK. Larger charities (generally those with over £500,000 income) are required to have a professional audit, while smaller charities are allowed an independent examination. An assessment of this regime is offered, drawing on direct analysis of the regulatory framework and investigating the independent examiner as a new form of professional practitioner.

Acknowledgements

Parts of this study were supported by the Association of Charity Independent Examiners. Earlier versions of this article were presented at the British Accounting Association Auditing Conference and at the NCVO/VSSN Researching the Voluntary Sector Conference—the author is grateful for feedback on those occasions.

Notes

Charities Act 1993, s43(3); Charities Accounts (Scotland) Regulations 2006, reg 11(1) (SSI 2006/ 218); Charities Act (Northern Ireland) 2008, s65(3).

Charities Act 1960, s8.

Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, ss4–5 as implemented by the Charities Accounts (Scotland) Regulations 1992 (SI 1992/ 2165).

For accounting requirements, see the Charities Accounts (Scotland) Regulations 2006 (SSI 2006/ 218)—made under s44 of the 2005 Act.

The Charities (2008 Act) (Commencement No. 3) Order (Northern Ireland) 2011 (NISR 2011/11).

In Northern Ireland the R&P upper limit is £100,000 income in s64(3) of the 2008 Act, but there have been suggestions that this may be amended to £250,000 before implementation.

The R&P basis is never permitted for a charity structured as a company.

Much writing on charity accounting uses the term ‘unincorporated’ to refer to charities which are not companies (trusts, associations and others). However, this is potentially misleading, because there are many possible corporate forms for charities other than incorporation as a company.

An audit can also be required at lower incomes if the charity's total assets exceed £3.26 million (England & Wales or Scotland), but there is no such requirement in Northern Ireland.

See Charity Commission (2009, pp. 9–11) for the latest guidance to charities in England and Wales on selecting an IE. Similar advice is offered by OSCR (2009, pp. 16–20).

Charities (Accounts and Reports) Regulations 2008 (SI 2008/629).

Charities Act 1993, s43(7)(b). The current directions, plus much additional guidance to IEs, appear in Charity Commission (2009).

Under s65(9)(b) of the Charities Act (Northern Ireland) 2008.

Charities Act 1993, s43(3A) (as inserted by Charities Act 2006); Charities Accounts (Scotland) Regulations 2006, reg 11(2); Charities Act (Northern Ireland) 2008, s65(4) and (5).

Charities (Accounts and Reports) Regulations 2008, reg 31(h)–(j) and Charities Accounts (Scotland) Regulations 2006, reg 11(3).

Charities Act 2009 (Republic of Ireland), ss50–51.

The Companies Act 1985 (Audit Exemption) Regulations 1994 (SI 1994/1935) made under the Companies Act 1985 as amended by the Companies Act 1989. The requirements were in ss249A–D of the Companies Act 1985 (as amended).

In each case, the company's assets could not exceed £1.4 million.

By the Companies Act 1985 (Audit Exemption) (Amendment), Regulations 1997 (SI 1997/936).

Figures reported to Parliament (Milburn, 2004, Vol. I, 131).

Companies Act 1985, s249C.

House of Lords Hansard (7 March 2006), Grand Committee, cols GC277–284.

House of Lords Hansard (10 May 2006), Companies Bill Report Stage, cols 960–964.

House of Commons (19 October 2006), Companies Bill [Lords] Report Stage Proceedings—the result was a simple power in s1175 of the Companies Act 2006.

House of Commons (25 October 2006), Charities Bill [Lords] Report Stage Proceedings—the amendment became s77 of the Charities Act 2006.

Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008 (SI 2008/527); Companies Act 2006 (Commencement No. 6, Savings and Commencement Nos 3 and 5 (Amendment)) Order 2008 (SI 2008/674); Charities Act 2006 (Commencement No. 4, Transitional Provisions and Savings) Order 2008 (SI 2008/945).

The RA regime was, however, retained for charitable companies in Northern Ireland, pending the implementation of a system of charity accounting under Northern Irish law.

Under the Charities Act 1993 s43(7)(a), the Charity Commissioners were empowered to issue statutory guidance on the selection and appointment of IEs.

House of Lords Hansard (14 March 2005), col GC451.

Estimated from Charity Commission (2010)—the data does not include a £25,000 break point.

Additional information

Notes on contributors

Gareth G. Morgan

Gareth G. Morgan is Professor of Charity Studies at Sheffield Hallam University and leader of the University's Centre for Voluntary Sector Research. Outside the university, he acts as an adviser to various charities.