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When in doubt, report it – Reporting matters of material significance


Three UK charity regulators issued their updated guidance on reporting matters of material significance in May 2017.

The three UK charity regulators:

  • The Charity Commission for Northern Ireland (CCNI)
  • The Office of the Scottish Charity Regulator (OSCR)
  • The Charity Commission for England and Wales (CCEW)

issued their updated guidance on reporting matters of material significance in May 2017. This has been effective for all audits or independent examinations which reported after 1 May 2017.

The UK charity regulators’ default preference for auditors and independent examiners is ‘When in doubt, report it’. As a bare minimum, there are nine items which must be reported. Number eight on the revised list ‘Modified audit opinion or qualified independent examiner’s report’ was new and appears to be causing issues!

CCEW have carried out research for the six month period between 1 May 2017 and 31 October 2017, and of 114 sets of audited accounts where a report should have been made (e.g. some form of modified opinion), only 28 reports were made. So less than one in four auditors appear to be complying with the requirements of reporting matters of material significance. Further details of this review can be found here.

CCEW is in effect saying ‘auditors failed in their statutory duty’. They are working collectively to raise awareness of this statutory duty to report, and are developing a formal framework with the ICAEW and the ACCA to share information on trends in reporting, including those of poor practice by their members, under a memorandum of understanding. This may include the failure to report a matter of material significance to the regulator. The CCEW is following up on the above instances where reports were not made and given their collaboration ICAEW and ACCA, and as such firms need to be prepared to answer questions as to why they have not been reporting.

The FRC have also announced that:

the auditor is required to have an understanding of the legal and regulatory framework applicable to the charity and the sector in which it operates, such that the auditor would be able to identify situations, which may give the auditor reasonable cause to believe that a matter should be reported to a charity regulator. This includes being familiar with the charity regulators’ guidance on reporting matters of material significance and other relevant charity regulators’ guidance.

The updated guidance gave specific detailed guidance in the area of modified opinions but, if you issued any sort of audit qualification or even if an unqualified opinion is given but an emphasis of matter is included or a material uncertainty relating to going concern is included, then this must be reported to the charity regulator.

Charities law requires the report to be made immediately when the matter comes to the auditor’s attention and the CCEW interprets this to be that such reports should be made no later than one day after the date the auditor’s report is signed. Of the 28 reports made, only six were made in the appropriate time frame, equating to under 22% of those which reported or 5% if including those which should have reported!

It isn’t just an audit issue!

An independent examiner does not form an opinion on the financial statements, but rather reviews the accounting records of the charity and compares the accounts presented with those records. Where differences arise, the report is qualified in those respects.

For auditors / examiners in England and Wales

For unincorporated charities and CIOs in England and Wales we are still in the situation where the Charity accounting regulations refer to an old SORP. CCEW guidance on this area has been that the new SORP must be followed for the accounts to be prepared on a ‘true and fair’ basis. CCEW have highlighted in the updated guidance that “in the event that the regulations have not been updated and an auditor or examiner decides that they need to refer in their audit opinion or independent examiner’s report to the new SORP being used, because it is different to one referred to in the regulations, such a reference is not considered to be a matter of material significance to the charity regulator”.

And in Scotland or Northern Ireland

Although the research has been undertaken by CCEW it is expected that similar statistics are occurring in Scotland and Northern Ireland.

So remember the UK charity regulators’ default preference for auditors and independent examiners is ‘When in doubt, report it.’

How can we help

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Written by Jenny Faulkner

Jenny Faulkner

Jenny is a part of Mercia’s technical team and she lectures on a range of audit and accounts courses, as well as carrying out peer reviews. Her specialisms involve FRS 102, IFRS, Charities and Academies and she is editor of the Mercia Charities SAM.


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