This article was first published in the March 2018 UK edition of Accounting and Business magazine.

‘When in doubt, report it.’ That’s the advice in the charity regulators’ guidance to trustees, auditors and independent examiners on matters of material significance that are reportable. Unfortunately it has not always been followed.

The Charity Commission in England and Wales carried out an accounting monitoring review for the period from 1 May to 31 October 2017 – the first six months since the updated list of reportable matters came into force. In their report published in February they say they found evidence of a failure to meet statutory obligations, which raises ‘significant concerns’. Anyone involved in the charity sector, especially trustees, auditors, independent examiners, internal auditors and professional bodies, must take appropriate action.

For all charity audits or independent examinations conducted and/or reported after 1 May 2017, there is a statutory responsibility to report matters of material significance. The charity regulators (and ACCA) have been highlighting the importance of statutory and non-statutory reporting by charities.

The regulators’ guidance includes checklists, but also warnings. It makes clear that it 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 law – that is, 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.

The guidance states that matters of material significance are those that ‘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 states that although ‘it is currently not a legal requirement for those conducting internal audits to report matters of material significance, 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 accounting monitoring review findings showed that, in the six months to 31 October 2017, the auditors of 117 charities gave audit opinions that contained information that they were required to report to the commission as a matter of material significance. Only 28 reports were received.

‘Significant concerns’

Nigel Davies FCCA, head of accountancy services at the Charity Commission in England and Wales, says: ‘Our recently published research on the extent to which auditors have reported directly to us when they have given modified audit opinions on charity audits poses significant concerns. In response to the concerns of the Public Administration and Constitutional Affairs Committee’s (PACAC) report on Kids Company in January 2016, we worked with the other UK charity regulators to update our guidance during 2017.

‘Significantly, PACAC also criticised the audit profession, with an inference that it is too risk-averse and unwilling to report its concerns to the charity regulator. Our recent research on auditor reporting lends support to PACAC’s concerns. The profession needs to step up its reporting, so we are working with ACCA to ensure that auditors and independent examiners know what is expected of them, and when and how they should report directly to us.’ 

Glenn Collins is ACCA UK’s head of technical advisory