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Audit news December 2017

Welcome to Audit News 61, your regulatory update containing the latest technical guidance and best practice advice. In this issue: charity audits, feedback from the Audit Registration Committee – FRS 102, ISA (UK) 250, iXBRL, False Assurance: now available with inbuilt commentary and new resources: audit report helpsheets.

In this issue:

Charity audits – changes to the matters to be reported to the Charity Regulator

Page last updated

11 December 2017

Any person appointed as an auditor or independent examiner of a UK charity has a duty to report certain matters of material significance to the appropriate charity regulator, either:

  • England and Wales – the Charity Commission for England and Wales (CCEW);
  • Scotland – the Office of the Scottish Charity Regulator (OSCR); or
  • Northern Ireland – the Charity Commission for Northern Ireland (CCNI). 

The UK charity regulators have recently revised their list of matters of material significance which require reporting. From 1 May 2017, the issuing of a modified audit opinion or qualified independent examiners report must be reported.

The guidance explains that the following is now a reportable matter of material significance:

‘During the course of an audit/independent examination, on making a modified audit opinion, emphasis of matter, material uncertainty related to going concern to which attention is drawn, notification of the nature of the modification/qualification/emphasis of matter or concern with supporting reasons including notification of the action taken, if any, by the trustees subsequent to that audit opinion, emphasis of matter or material uncertainty identified/independent examiner’s report.’

All modified opinions and paragraphs issued from 1 May 2017 must therefore be reported, and the level of detail should be proportionate to the severity of the modification. The report to the regulator should clearly explain the nature of the matter and, where applicable, any action taken by the trustees in relation to the matter that led to the modified opinion. The auditor is not required to distinguish between technical qualifications or other matters; all modifications must be reported.

Reports should be made to the jurisdiction where the charity is registered and where the accounts will be filed as follows:

England and Wales

There is a legal requirement for the reports to be made in writing. Reports should be made to whistleblowing@charitycommission.gsi.gov.uk. The email should be headed ‘Matter(s) of material significance reported’ and should provide the following information:

  • The reviewers name and contact address, telephone number and/or email address.
  • The charity’s name and registration number.
  • A statement that the report is made in accordance with section 156 of the Charities Act 2011.
  • That the report is being made under the 8th heading of reportable matters.
  • A description of the matter giving rise to concern and the information available on the matter. reported and, where possible, provide an estimate of the financial implications.
  • Where the trustees are attempting to deal with the situation, a brief description of any steps being taken by trustees of which the examiner has been made aware.
  • If the report concerns terrorist, money laundering or other criminal activity whether you have notified the National Crime Agency and / or the Police as appropriate.
  • If the report concerns the abuse of vulnerable beneficiaries whether you have informed the Police and/or social services.

Northern Ireland

There is a legal requirement in Northern Ireland for the reports to be in writing. Reports should be made to concernsaboutcharities@charitycommissionnni.gov.uk. The email subject line should include reference to reporting matters of material significance. The report should include information regarding the following;

  • the party reporting and the charity;
  • an explanation of the issue(s) of concern;.
  • identification of any supporting evidence regarding the matter under report; and
  • a method of contact to follow up on the information received.

Scotland

There is no legal requirement to put the report in writing in Scotland but it is strongly encouraged. Reports should be made to Section46@oscr.org.uk. The email subject line should include reference to reporting matters of material significance. The report should include information regarding the following;

  • the party reporting and the charity;
  • an explanation of the issue(s) of concern
  • identification of any supporting evidence regarding the matter under report; and
  • a method of contact to follow up on the information received.

Further information is available from gov.uk or from our website.

Feedback from the Audit Registration Committee – FRS 102

During 2017, the Audit Registration Committee (ARC) saw a number of issues concerning the audit of accounts prepared under FRS 102; particularly where the auditor also prepared those accounts.

While it is the directors’ responsibility to prepare their statutory accounts in accordance with the correct accounting framework, smaller clients often rely on their auditor to ensure accounts comply with these requirements. However, in the cases reported to the ARC, accounts prepared by the firm have either been wrongly prepared under the previous framework, or the requirements of FRS 102 have not been fully met.

The ARC is concerned that these findings suggest weaknesses in the CPD carried out by firms who have not properly understood the changes required under FRS 102, or how to use their accounts preparation software properly. The ARC would therefore like to remind firms that ICAEW has provided a range of helpful materials on FRS 102 for accounts preparers and auditors, which highlight certain problem areas and provide other useful guidance notes. These include:

  • ICAEW’s resources on the new UK GAAP.
  • The 2017 Audit Essentials report on audit monitoring, and accompanying webinar FRS102 Implementation.
  • An article by the Financial Reporting Faculty on the changes introduced by the new UK GAAP.
  • An Audit and Assurance Faculty webinar on Problems auditing the new UK GAAP.
  • Other Financial Reporting Faculty webinars and event recordings on the new UK GAAP.

In addition, further articles and publicity are planned in 2018.

While the ARC did not issue any regulatory penalties in 2017 in respect of FRS 102-related issues, it does expect all responsible individuals and those staff involved in audit work to carry out appropriate CPD in this area. The ARC also expects firms to implement appropriate controls to ensure accounts are prepared under the appropriate regime – for example, by using accounts disclosure checklists and by checking the small/medium company size criteria to be satisfied the accounts are prepared on the correct basis.

The committee would also like to highlight that if firms fail to prepare accounts in accordance with FRS 102 in the second year of implementation, or an audit does not identify significant non-compliance with FRS 102, firms may be sanctioned by the ARC, or in more serious cases, be referred to ICAEW’s Professional Conduct Department for investigation.

Firms are therefore encouraged to review the above materials to ensure any gaps in knowledge of the FRS 102 framework are addressed by appropriate CPD and that appropriate quality control procedures are in place.

Reporting to the Regulator - ISA (UK) 250 - Section B - Paragraph 13R-1 (ii)

ISA (UK) 250 Section B includes the requirement from Article 12 of the EU Audit Regulation. It states the auditor of a PIE should report matters to the regulator which may bring about a material threat or doubt concerning the continuous functioning of that PIE. In the UK, the FCA has the regulatory powers to be able to respond to such reports. Reports may be sent to IandEMailbox@fca.org.uk

iXBRL

The power of iXBRL to underpin transparency and improve efficiency has been well understood for a number of years. However some organisations fail to take advantage of these benefits. Recently the Financial Reporting Council (FRC) has published its own annual report and accounts. This report has been fully tagged with iXBRL. The accounts are an excellent example of complete, accurate and readable reporting that can also be loaded into automated systems such as HRMC or Companies House.

False Assurance: How would you act?

Our first educational film, False Assurance, is now available with incorporated commentary. This bespoke version of the film is designed for small groups of accountants or individuals to simulate the thought-provoking discussions generated at larger facilitated events. This high quality training film brings to life a number of topical issues which include:

  • Evaluation of cyber security risks.
  • How to deal with difficult relationships and how to navigate ethical dilemmas.
  • The need for quality checking and the right way to interrogate information.
  • Risk management, efficient working methods and the importance of strong leadership.

New resources: audit report helpsheets

ICAEW’s Audit and Assurance Faculty has produced a series of eight new helpsheets designed to help firms prepare their audit reports for certain specific situations. They cover the main changes that are needed to help firms comply with the relevant laws and International Standards on Auditing (UK).

The eight are:

Preparing a non-statutory audit report – this is designed to explain the main changes that are needed to be made to the company examples in the FRC’s Compendium of illustrative auditor’s reports. It applies to opinions issued in accordance with ISAs (UK) for entities other than companies where there is no statutory or regulatory requirement for an audit to be undertaken.

Preparing an audit report for Limited Liability Partnerships – this explains the main changes that are needed to the audit report of a limited liability partnership (LLP) that does not prepare group financial statements compared to that of a company.

Preparing an audit report for Limited Partnerships – the main changes that are needed to the audit report of a limited partnership (LP) formed under the Limited Partnerships Act 1907, which is not a Qualifying Partnership and that does not prepare group financial statements, compared to that of a company. It does not seek to explain every difference, just the key areas to consider as a result of the differing legal and regulatory requirements.

Preparing an audit report for Qualifying Partnerships – this helpsheet explains the main changes that are needed to the audit report of a limited partnership which is a qualifying partnership (QP), and that does not prepare group financial statements, compared to that of a company.

Preparing an audit report for a group – combined audit report for the group and parent company – this is designed to explain the main changes that are needed to the audit report of a group compared to that of a company only.

Preparing an audit report for a group: separate audit report for the group and parent company – this explains the main changes that are needed to the separate audit reports of a group and parent company compared to that of a company only.

Preparing an audit report for occupational pension schemes – this helpsheet is designed to explain the main changes that are needed to the audit report of a pension scheme compared to that of a company

and

Preparing an audit report for a charity – this explains the main changes that are needed to the audit report of a charity that does not prepare group financial statements.