Concerns over Financial Audits of Charities

The Charity Commission has raised concerns over perceived failures by auditors to alert the charity regulator to matters of material significance identified in charity audit reports

According to a recent review conducted by the regulator, of the 114 auditors who gave audit opinions containing information they were required to report to the regulator in the six months to October 2017, only 28 contacted the Commission.

The Commission says it is now working with the accountancy profession to raise auditors’ awareness of requirements and address this under-reporting, which it describes as raising a ‘significant concern’ about the adequacy of reporting to the Commission by auditors.

The regulator undertook the review to test compliance with rules that came into force from May 2017, extending the list of reportable matters to include modified audit opinions, such as paragraphs about an emphasis of matter or a material uncertainty regarding going concern – meaning there are doubts as to the charity’s ability to remain solvent.

The new rules are designed to help the regulator intervene in a more timely way, notably where charities face financial difficulty putting their future at risk. They follow the Public Administration and Constitutional Affairs Select Committee’s inquiry into the collapse of Kids Company, which recommended clearer guidance to auditors on the issues regulators expected them to report.

Of the 28 auditors who made a required report to the Commission, only six did so promptly, or within one day of signing the audit opinion; three waited more than two months to alert the Commission.

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