Independent Examinations

An independent examination provides a form of external scrutiny which is less detailed and less expensive than an audit, and is designed to be undertaken by both accountancy practitioners and others with the requisite ability and practical experience. The Directions are proportionate, and allow a simpler scrutiny of receipts and payments accounts, compared to the more complex accruals accounts, which require familiarity with accounting principles.

An examination involves a review of the accounting records kept by the charity and a comparison of the accounts presented with those records. It also involves a review of the accounts and consideration of any unusual items or disclosures identified.

All charity's below the audit threshold (currently £500,000) may choose to have their financial statements independently examined rather than audited (assuming their own governing document doesn't stipulate an audit). A major donor or grant maker may require the financial statements to be audited even though an independent examination might otherwise have been chosen.

Only charities with yearly incomes of more than £10,000 are required to have their accounts independently examined or audited – below that threshold, accounts inspection is only needed if it is required by the charity’s governing document.

Charitable Companies

Charitable companies with accounting periods beginning on or after 1st April 2008 with income of less than £500k are eligible for Independent examination.

Charitable companies with accounting periods prior to 1st April 2008 are not eligible for independent examination; they must follow the provisions of the Companies Act and Regulations made under it.  In England and Wales, charitable companies with income above £90k require a Reporting Accountant to prepare their accounts. There is no requirement for charitable companies with income below £90k to undergo any kind of external scrutiny at all.

Trustees Responsibility

It is the responsibility of the trustees to satisfy themselves that their independent examiner is appropriately experienced or qualified to undertake the independent examination. Where appropriate, the trustees may wish an independent examiner to provide evidence of their experience, accreditation, or qualifications.

An independent examiner as described in section 43(3)(a) is “an independent person who is reasonable believed by the charity trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts”

For an examiner to be independent that individual should have no connection with the charity trustees which might inhibit the impartial conduct of the examination.

For a more detailed explanation see ACIE

Differences from audit

An Independent Examination differs from an audit in that:

The examiner follows a twelve-stage Charity Commission-directed process that covers review of the accounts, consideration of any unusual items or disclosures identified, and a compliance check.

After completion of the IE, the examiner issues a statement that states 'no matter has come to my attention which gives me reasonable cause to believe that in any material respect the requirements to keep accounting records in accordance with section 41 of the 1993 Act; and to prepare accounts which accord with the accounting records and comply with the accounting requirements of the 1993 Act have not been met'.

An independent examination therefore provides a negative assurance - in contrast to the positive assurance given by an audit which follows deeper procedures to arrive at the audit opinion that the financial statements give a 'true and fair view'.

A charity eligible for an independent examination may prefer to have an audit, but the trustees could be required to justify the likely extra cost.