External scrutiny is where a person, independent of the charity must review the accounts and produce a report, attached to the accounts, that highlights any issues to the reader.
Non-company charities may prepare receipts and payments accounts where their gross income in a financial year is less than £250,000.
Charities that have prepared accounts on a receipts and payments basis can subject their accounts to an independent examination unless:
Independent examination is a less onerous form of external scrutiny than an audit and is available, under the 2006 Regulations, for charities with a gross income under £500,000. This threshold has been set at a level where the more detailed audit scrutiny is not deemed essential as an independent examination is deemed rigorous enough for this size of charity.
An independent examiner reviews the accounting records kept by the charity and compares them with the accounts prepared from those records. The examiner then prepares a report which provides the information required by the 2006 Regulations and provides an assurance as to whether or not anything has been found that needs to be brought to the attention of readers of the accounts.
The independent examination of receipts and payments accounts must be carried out by someone independent of the management and administration of the charity and who the trustees believe has the required skills and experience to carry out a competent examination of the accounts.
See section 4.1 in Part 1: The Overview for an explanation of who would be considered independent of the management and administration of the charity.
In deciding who might have the required skills charity trustees should take into consideration the degree of complexity of the charity’s accounts. The more complex the accounts the more experience the independent examiner will require. The types of people who charity trustees could consider as having the required skills and experience might include for example:
After completing the independent examination of a charity’s accounts the examiner must make a report to the charity trustees which:
An example independent examiner’s report is shown as part of the example accounts within Section 6 of this Guide.
Where a charity has prepared accounts on the receipts and payments basis and an audit is required, the audit must be carried out by a registered auditor. An audit report of receipts and payments accounts will not comment on whether the accounts provide a true and fair view of the financial affairs of the charity. However, the audit report will say whether or not the statement of account properly presents the receipts and payments of the charity.
The auditor must prepare a report on the accounts for the charity trustees that:
The statement must contain the grounds for forming any of the above opinions.
In preparing the audit report the auditor must carry out such investigations as he or she feels necessary to enable them to form an opinion regarding the matters above.
Where an auditor appointed by charity trustees ceases to act as the auditor he or she must send to the charity trustees:
The auditor must also send to OSCR a copy of any statement he or she has sent to the charity trustees containing circumstances connected with the auditor ceasing to hold that office that he or she feels should be brought to the attention of the charity trustees.
See section 4.3 of Part 1: The Overview for guidance on the independent examiners and auditors’ duty to report matters to OSCR under the 2005 Act.
More detail relating to this can be found within our guidance ‘Matters of Material Significance reportable to UK charity regulators’.
In addition to the reportable matters set out above, auditors and independent examiners may also to report any other matter which may be of significance to us in exercising our functions. Further information is available in our guidance – ‘Reporting of relevant matters of interest to UK charity regulators’.