The Charity Commission (after appropriate consultation with the professional bodies) has issued revised “Directions” for carrying out Independent Examinations, mandatory with effect from 1 December 2017.
While much of the work of the Examiner is unchanged there is a new format Examiner’s Report and also changes to the emphasis of the work with three new Directions.
1 – There is a new requirement for Examiner’s to consider their independence. In particular Examiner’s should consider the impact of other work carried out on behalf of the charity such as preparing accounts and writing up records. Particularly in the case of the second this is only permissible within certain parameters and with appropriate safeguards to avoid the loss of independence.
2 – There is a new Direction requiring that “if the accounts are prepared on an accruals basis and one or more related party transactions took place the examiner must check if these were properly disclosed in the notes to the accounts.”
3 – Finally, “the examiner must check whether the trustees have considered the financial circumstances of the charity at the end of the reporting period and, if the accounts are prepared on an accruals basis, check whether the trustees have made an assessment of the charity’s position as a going concern when approving the accounts.”
What do these changes mean for charities?
None of these are new but the fact that these are now included in separate Directions does indicate the higher importance that the Commission places particularly on Related Party transactions and Going Concern, as experience indicates that these are the areas most likely to give problems. You may find that your examiner will ask further questions in relation to these areas as part of their work.
In anticipation, charities should prepare proper projections and forecasts to indicate the financial position of the organisation for at least twelve months from the date of likely approval. They should also ensure that all proper legal and constitutional requirements regarding related party transactions are properly followed and documented. These are of course best practice and what the Charity Commission would expect anyway.