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Section 3 The external scrutiny of charity accounts

Published: 18/04/2019
Updated: 18/04/2019

3.1     Background

Accounts must be independently scrutinised. The aim of external scrutiny is to give a degree of confidence in the words and figures presented in the accounts and to confirm that they have been prepared in accordance with the Regulations.

There are two main types of external scrutiny to which charities’ accounts are subject:

  • audit
  • independent examination.

An audit provides reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In undertaking an audit, a registered auditor must comply with the UK Financial Reporting Council’s ethical standard for auditors and International Standards on Auditing (UK).

Many charity governing documents use the term ‘audit’ when describing the type of external scrutiny to which the accounts should be subject. The charity trustees of charities not required to have an audit under the Regulations or any enactment may consider that the benefits of having an audit are outweighed by the costs. Charity trustees of such charities may wish to review their governing document and:

  • retain the term audit because they decide that the accounts should continue to be audited, or
  • amend the governing document (where they have the power to do so) to reflect the charity trustees’ or members’ intentions regarding external scrutiny.

Any change to the governing document must be carried out in accordance with the terms of the governing document and with consideration of any professional advice received. Notification of the change to the governing document must also be sent to OSCR within three months of the change being made.

In addition, some funding bodies require the charities to have their accounts ‘audited’. Charities whose gross income means they could carry out an independent examination under the Regulations may wish to discuss with their funding bodies what is meant by the term ‘audit’, and if external scrutiny by an independent examiner as required under the Regulations would be sufficient.

Independent examination
An independent examination is a form of external scrutiny of the accounts which is less rigorous than an audit. It offers an assurance that nothing has been found that needs to be brought to the attention of readers of the accounts rather than the positive expression of a professional opinion based on an audit.

Historically, the term ‘audit’ has been used loosely to describe any independent scrutiny of accounts. However, under the Regulations if the term ‘audit’ is used in a charity’s governing document or governing document the charity must have its accounts audited by a registered auditor or a person appointed by the Accounts Commission for Scotland or by the Auditor General for Scotland (responsible principally for public bodies).


3.2   External scrutiny and type of accounts prepared

The type of external scrutiny appropriate for a particular charity will be determined by:

  • any reference to audit in the governing document
  • whether the charity is a company
  • the charity’s gross income and the value of assets held (before deduction of liabilities) for the accounting period
  • a decision of the charity trustees to have the accounts audited
  • any third party requirements, for example a funder, for an audit.

The answers to the questions in Flowchart 2 below will determine the type of external scrutiny under charity law to which accounts should be subject. The charity should then read:

A Guide to Charity Accounts Part 2: Receipts and Payments Accounts


A Guide to Charity Accounts Part 3: Fully Accrued Accounts

for more detailed guidance on external scrutiny appropriate to the type of accounts prepared.