The auditor's responsibility to report to a charity's regulator
22 February 2018
The FRC's Practice Note 11 The audit of charities in the United Kingdom,
revised in November 2017, provides guidance on how the auditor ensures that they comply with their statutory duty to report matters of material significance to the relevant charity's regulator. The charities regulators in the UK have jointly issued guidance for auditors on this statutory duty, which includes a list of matters that are always considered reportable to the relevant charity regulator(s). Auditors are required to report to the relevant charity regulator where an auditor's report issued on or after 1 May 2017 contains a modified opinion, a paragraph highlighting a material uncertainty related to going concern, or an emphasis of matter.
The Charity Commission in England & Wales (CCEW) recently published their latest Accounts monitoring: Reporting of matters of material significance by auditors
In the six months to 31 October 2017, CCEW found that of the 114 auditor's reports that should have been reported to it as a matter of material significance, only 28 such reports were given. Further, only a small proportion of those 28 reports were made on a timely basis. Charities law requires the report to be made immediately the matter comes to the auditor’s attention. The Charity Commission interprets this to be that such reports should be made no later than one day after the date the auditor's report is signed.
The FRC reminds auditors of charities that they are required to carry out their audit in compliance not only with the FRC's ethical and auditing standards, but also applicable legal and regulatory requirements. In order to do so, 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 FRC and the audit professional bodies will work with the charities regulators to promote and enforce these reporting requirements which operate in the public interest.