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Section 2 Types of external scrutiny

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

In Scotland, more than two thirds of charities are ‘small’ – that is, they have an annual income of less than £25,000. OSCR recognises that complying with statutory requirements can sometimes be challenging for ‘small’ charities due to the resources available to them therefore OSCR publishes specific guidance to assist and support the small charity. This Guide aims to be a comprehensive package, providing information and practical guidance on both the preparation of accounts and external scrutiny. The Guide is written particularly for the smaller charity although a number of best practice elements are also applicable to larger charities.

All Scottish charities are required to prepare annual accounts. These consist of numerical information and also a Trustees’ Annual Report which is narrative information providing details that cannot be expressed in financial terms. This is important for a full understanding of the charity, its organisational structure, purpose and the activities that it carries out The report is particularly useful for readers who are not familiar with accounts but are still interested in understanding what the charity has achieved.

A charity’s accounts are a means of communication that the charity can use to its own advantage. Anyone who has ever given time or money to a charity will have an interest in understanding how the charity uses that money.

OSCR has already published specific guidance on how to prepare accounts, and on the content of the Trustees’ Annual Report:


Under statutory requirements, the accounts of Scottish charities must be externally scrutinised. That is, someone who is independent of the charity has reviewed the accounts and produced a report, attached to the accounts, that highlights any issues to the reader. As such, external scrutiny is an important component of the overall regulation of charities in Scotland, a scheme designed to ensure transparency and public accountability by charities.

Independent examination is one of the two forms of external scrutiny that may be carried out under the statutory provisions in Scotland. 

Broadly speaking, an independent examination involves reviewing the accounting records and the annual accounts of the charity and considering whether the annual accounts properly reflect the underlying records. An independent examination provides a degree of comfort that the figures in the accounts, including the Trustees’ Annual Report, present an accurate picture of the financial activity of the charity during the accounting period.

Also involved in the independent examination process is consideration of any unusual items in the accounts that may require further discussion or explanation from the charity trustees. The independent examination seeks to consider whether the charity’s accounts, fulfil the requirements of the 2006 Regulations. The independent examiner also reviews the Trustees’ Annual Report for any inconsistency with the accounts.

An independent examination is a form of external scrutiny of the accounts which:

  • Is a statement that nothing has been found that needs to be brought to the attention of readers of the accounts (or the opposite if this is the case).
  • is less rigorous than an audit
  • is less costly than an audit.

The independent examiner’s report is prepared on an ‘exception’ basis. This means that there is an assumption that the examiner is content with the accounting records and accounts unless they specifically state otherwise. The report is intended to be simpler than an audit and no opinion is expressed on whether the accounts give a “true and fair view”.

In contrast, an auditor is required to build up a body of evidence and express an opinion on the accounts. The opinion given in an audit depends on the nature of the accounts that have been prepared.

  • If receipts and payments accounts have been prepared, the opinion will state whether or not the accounts ‘properly present’ the receipts and payments for the charity for the financial year. In practice, OSCR expects very few charities preparing receipts and payments accounts to have an audit.
  • If fully accrued accounts have been prepared, the opinion will state whether the accounts provide a ‘true and fair view’ of the financial affairs of the charity and its income and expenditure during the year then ended.

Historically, the term ‘audit’ has been used loosely to describe any external scrutiny of accounts, although since 1990 it has had a more specific meaning. Under the 2006 Regulations, if the term ‘audit’ is used in a charity’s governing document, the charity must have its accounts audited by either:

  • a registered auditor
  • the Auditor General for Scotland
  • an auditor appointed by the Accounts Commission for Scotland (responsible principally for public bodies).

Milestone 1

  • Does the governing document of the charity require an audit to be carried out rather than an independent examination?

If the governing document contains a requirement for audit, the examiner would not be able to independently examine the accounts.  If the charity trustees wanted an examination to take place then they would need to seek to amend the governing document. See Making changes to your charity for more information.