Published on: January 16, 2012
Guidance on Independent Examination
(with sample Independent Examiner's Report)
Guidance on Independent Examination
To which accounting periods does this guidance apply? 1
Who should use this guidance? 1
What is an independent examination? 1
Other external scrutiny requirements 1
Selection of independent examiners 1
Independent examiner’s report 1
Commissioner of Charities’ Guidance Notes: 2
Guidance Note 1 Understanding the charity
Guidance Note 2 Documentation
Guidance Note 3 Comparison with accounting records
Guidance Note 4 Accounting records
Guidance Note 5 Analytical procedures
Guidance Note 6 Content of financial statements, accounting
policies, estimates and judgements
Guidance Note 7 Events subsequent to year-end
Guidance Note 8 Independent Examiner’s Report
Guidance Note 9 Report to the Commissioner of Charities
Sample Independent Examiner's Report 3
1. The audit threshold stipulated in the Charities (Accounts and Audit) Regulations 2011 has been raised from $250,000 to $500,000 on 1 March 2011.
Charities that are not subject to statutory audit will need to have their accounts examined by independent examiners.
To which accounting periods does this guidance apply?
2. This guidance is applicable for the examination of financial statements for accounting period ending on or after 1 March 2011.
Who should/may use this guidance?
3. This guidance is intended for those who carry out the independent examination of the financial statements of charities with gross income or total expenditure less than or equal to $500,000 in —
a. the relevant year;
b. the financial year of the charity immediately preceding the relevant year (if any); and
c. the financial year of the charity immediately preceding the year specified in paragraph (b) (if any).
What is an independent examination?
4. Independent examination is a less onerous form of scrutiny than an audit and provides less assurance both in terms of the depth of work which is to be carried out and the qualification necessary to undertake such work. It involves:
a. Review of the charities’ accounting records;
b. Comparison of the financial statements presented with those records; and
c. Review of the financial statements and consideration of any unusual items or disclosures identified.
5. Verification and vouching procedures only become necessary where there are material concerns or doubts about the procedures, and/or where the charity cannot provide satisfactory explanations.
6. The independent examiner is not required to build up a body of evidence to support a positive opinion on the financial statements as required for an audit nor required to form an opinion on whether the financial statements show a “true and fair view”.
Other external scrutiny requirements
7. The independent examiner must be aware that an audit obligation may arise due to requirements not under the Charities (Accounts and Annual Report) Regulations 2011, such as:
a. Requirement under the charity’s governing instrument;
b. Requirement under another statutory or regulatory regime, such as those receiving grants from the government; or
c. Requirement placed on the charity by a donor or grant-maker.
8. Governing board members1 and key officers2 may also opt for a statutory audit to be carried out if they prefer the higher level of assurance that it provides.
Selection of independent examiners
9. The following paragraphs set out the guidance on the selection of an independent examiner.
10. Definition. An independent examiner is “an independent person who is reasonably believed by the governing board members to have the requisite ability and practical experience to carry out a competent examination of the financial statements”.
11. Independence. For an examiner to be independent, the individual should have no connection with the governing board members which may inhibit the impartial conduct of the examination. Where a potential independent examiner is a member of the charity (e.g. a member of a church congregation), they may act as an independent examiner provided that they have not been involved in the day-to-day decision making or administration of the charity (e.g. serving on a committee or subcommittee convened by the charity).
12. Qualifications. An independent examiner must be competent for the tasks that he is to do and must be familiar with accounting methods. He does not need to be a practicing accountant. The governing board members must always appoint a person suitable for the charity’s circumstances. Involvement in other similar charities’ financial administration, previous experience in independent examination and/or practical experience in accountancy or commerce is desirable.
13. It is the responsibility of the governing board members and key officers to satisfy themselves that their independent examiner is appropriately experienced or qualified to undertake the independent examination. Where appropriate, the governing board members and key officers may wish to ask an independent examiner to provide evidence of their experience, accreditation, or qualifications.
1 Governing board members” means members of the governing body of a charity or trustees for a charity having the general control and management of the administration of the charity.
2 Key officer” means an officer of a charity, whether or not an employee of the charity, having the general control and management of the administration of the charity, and includes any person, by whatever name called, who exercises such general control and management.
14. An independent examiner will need to be a qualified accountant if the charity’s gross income or total exceeds $250,000 but is less than or equal to $500,000. Such qualified accountant will have to be either a member3 of the Institute of Certified Public Accountants of Singapore (ICPAS) or one of the following bodies:
a. Institute of Chartered Accountants of Scotland (ICAS);
b. Institute of Chartered Accountants of England and Wales (ICAEW);
c. Institute of Chartered Accountants of Ireland (ICAI);
d. Association of Chartered Certified Accountants (ACCA) (formerly known as the Chartered Association of Certified Accountants);
e. Institute of Chartered Accountants in Australia (ICAA);
f. CPA Australia (formerly known as the Australian Society of Certified Practising Accountants);
g. New Zealand Institute of Chartered Accountants (NZICA) (formerly known as the Institute of Charted Accountants of New Zealand);
h. Canadian Institute of Chartered Accountants (CICA);
i. American Institute of Certified Public Accountants (AICPA);
j. Chartered Institute of Management Accountants of the United Kingdom (CIMA), except that CIMA members who have passed its final exams on or after May 2005 shall have passed subjects in:
i. Advanced Taxation; and
ii. Company Law and Corporate Governance conducted in conjunction with the ICPAS Professional Examination prior to applying to be admitted as Provisional members.
Independent Examiner’s Report
15. Following the examination, the independent examiner is required to produce a report. The specific reporting duties of the independent examiner are detailed in the following paragraphs.
3 ICPAS members include both practicing (audit partners) and non-practicing members (non-audit partners).
16. The independent examiner should make a report which :
a. States his name and address and the name of the charity concerned;
b. Is signed by him and specifies any relevant professional qualifications/membership of any relevant professional body. Whilst the name of a partnership or company may be added, the appointment of an independent examiner relates to the individual rather than the partnership or company;
c. Is dated and specifies the financial year in respect of which the financial statements to which it relates have been prepared;
d. Specifies that it is a report in respect of an independent examination carried out under Charities (Accounts and Annual Report) Regulations 2011;
e. States whether or not any matter has come to the independent examiner’s attention in connection with the examination which gives him reasonable cause to believe that in any material respect:
i. Accounting records have not been kept in respect of the charity in accordance with Charities (Accounts and Annual Report) Regulations 2011; and/or
ii. Financial statements do not accord with those records.
f. States whether or not any matter has come to his attention during the examination to which, in his opinion, attention should be drawn in the report in order to enable a proper understanding of the financial statements to be reached; and
g. Contains a statement as to any of the following matters has become apparent to the examiner during the examination, namely, that:
i. There has been any material expenditure or action which appears not to be in accordance with the charity’s objects; or
ii. Any information or explanation has not been afforded to him.
Commissioner of Charities’ Guidance Notes
17. The Commissioner of Charities’ Guidance provides the procedural basis or framework to define how the reporting duties of the independent examiner must be met. There are 9 specific Guidance Notes that the independent examiner must address in carrying out an examination.
1. Understanding the charity
3. Comparison with accounting records
4. Accounting records
5. Analytical procedures
6. Content of financial statements, accounting policies, estimates and judgements
7. Events subsequent to year-end
8. Independent Examiner’s report
9. Reports to Commissioner of Charities
Guidance Note 1 – Understanding the Charity
1.1 It is important for the independent examiner to have an understanding of the charity’s governing instrument, organisation, accounting systems, activities and nature of its assets, liabilities, income and expenditure in order to plan the examination procedures appropriate to the charity’s circumstances.
1.2 The steps taken by an examiner will normally include:
a. Consideration of the charity’s governing document, paying particular attention to the charity’s objects, powers and obligations;
b. Discussions with the governing board members and, where appropriate, the charity’s staff to ascertain the structure, methods and means by which the charity seeks to achieve its objects;
c. Discussions with the governing board members and, where appropriate, the charity’s staff about the affairs, and activities of the charity in order to gain an insight into any special circumstances and problems affecting the charity;
d. Reviewing the minutes of board meetings to ascertain details of major events, plans, decisions and changes to the board; and
e. Obtaining details of accounting records maintained and methods of recording financial transactions.
Guidance Note 2 – Documentation
2.1 The independent examiner should record the examination procedures carried out and any matters that are important to support conclusions reached or statement provided in the examiner’s report.