Charity reporting: matters of material significance

The regulator is taking a stronger line on reporting matters

The Charity Commission, in its report Accounts monitoring review: following up our review of reporting of matters of material significance by auditors, has clearly stated that where auditors or independent examiners fail to make a report regarding a matter of material significance the commission will report this directly to professional bodies as a formal complaint. They will no longer contact auditors or independent examiners to ask why a report wasn’t made. 

What was and is clear is that it is important for anyone involved in the charity sector – especially trustees, auditors, independent examiners, internal auditors and professional bodies – to take appropriate action and, where appropriate, report.

In ACCA’s AB magazine in April 2018 we re-highlighted that for all audits or independent examinations for charities in England and Wales, Scotland and Northern Ireland, which are conducted and/or reported after 1 May 2017, there is a statutory responsibility to report matters of material significance.

The guidance issued by the regulators includes checklists, but also warnings. The regulators are clear that the guidance applies to auditors and independent examiners of charity accounts, and that it is designed to highlight their legal responsibility to report significant matters in accordance with the applicable law. They cite the relevant laws as section 67 of the Charities Act (Northern Ireland) 2008, sections 156 and 159 of the Charities Act 2011, and section 46 of the Charities and Trustee Investment (Scotland) Act 2005.

Auditors and independent examiners have a statutory duty to report and must report any matters of material significance which they become aware of during their appointment. The guidance states that ‘these are matters which are of material significance to the regulator in carrying out their functions. For example, the matter may be an issue which the charity regulator will consider for investigation or which could impact on the charitable status of the organisation.’

The advice contained in the guidance for internal auditors is that ‘it is currently not a legal requirement for those conducting internal audits to report matters of material significance, but the UK charity regulators consider such reporting to be helpful and best practice and, therefore, the internal auditor should familiarise themselves with the matters required to be reported to the charity regulator'.

The guidance also states that ‘charity trustees should therefore be aware of the matters of material significance and the duty placed upon an auditor or independent examiner to report matters to the regulator'.

Do remember that auditors and independent examiners are only expected to report matters which they identify in the normal course of their work. There is no expectation by the commission that they should undertake additional work to identify such matters. It is, however, important to remember that auditors and independent examiners are expected to exercise their own judgement when considering if they have a duty to report. Even though a matter may not be listed, a report must be made if the auditor or independent examiner considers it appropriate.

You can find previous articles on this matter in AB July/August 2017, November/December 2017, January 2018, March 2018 and April 2018, while a factsheet on matters of material significance contains valuable guidance.

You can also watch a webinar: Reporting duties of auditors and independent examiners.