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Matters of Material Significance reportable to UK charity regulators

Author: ICAEW

Published: 03 Nov 2021

Guidance for auditors and independent examiners about the statutory duty to report any matters of significance to charity regulators in England and Wales, Scotland and Northern Ireland.

In April 2020, the UK charity regulators released updated guidance for auditors and independent examiners on the requirement to report matters of material significance to them. Changes made to the guidance clarified that where the impact of a national emergency affects the conduct of an audit or independent examination there is a duty to report in respect of those procedural matters.

Timely reporting enables the regulators to gather intelligence which they use to identify the incidence of reportable matters within the sector. These inform regulatory alerts, guidance or interventions to ensure that public confidence and trust in charities is maintained.

The Charity Commission for England and Wales undertakes regular reviews of the reporting of matters of material significance by auditors and independent examiners and shares the outcomes of these reviews with the professional accountancy bodies.

Timely reporting is essential

The regulators have considered the factors that affect when a report should be made. Their expectation as to when a report is made are:

  • as soon as possible on becoming aware of an immediate risk to charitable funds, a material loss due to fraud, or doubts as to the integrity of trustees or key management personnel; or
  • in instances where the auditor or examiner concludes that the trustees and/or key management personnel are uncooperative, deliberately unresponsive, or unreasonably slow in responding to the auditor or examiner seeking to discuss a reportable matter, then the report is made as soon as possible and in such cases the auditor or examiner should include reference to this behaviour in their report; or
  • on signing or making a modified audit opinion, an audit opinion with an emphasis of matter or material uncertainty regarding going concern; or
  • on signing or making an independent examination report where the regulator’s guidance identifies there is a duty to report; or
  • for those accounts that must be tabled before a Parliament or a Governmental Assembly, once the tabling process has been completed; or
  • for other circumstances not listed above, reporting is done as soon as possible following on from any discussion(s) had with trustees.

What to report

The matters in the following list (effective since May 2017) are always considered reportable as matters of material significance by UK charity regulators.

Auditors and independent examiners may also decide that other matters not included in this list are in their judgment of such a nature that they consider them reportable as a matter of material significance.

1

Dishonesty and fraud

Matters suggesting dishonesty or fraud involving a significant loss of, or a material risk to, charitable funds or assets.

2

Internal controls and governance

Failure(s) of internal controls, including failure(s) in charity governance that resulted in, or could give rise to, a material loss or misappropriation of charitable funds, or which leads to significant charitable funds being put at major risk.

3

Money laundering and criminal activity

Knowledge or suspicion that the charity or charitable funds including the charity’s bank account(s) have been used for money laundering or such funds are the proceeds of serious organised crime or that the charity is a conduit for criminal activity.

4

Support of terrorism

Matters leading to the knowledge or suspicion that the charity, its trustees, employees or assets, have been involved in or used to support terrorism or proscribed organisations in the UK or outside of the UK, with the exception of matters related to a qualifying offence as defined by Section 3(7) of the Northern Ireland (Sentences) Act 1998.

5

Risk to charity’s beneficiaries

Evidence suggesting that in the way the charity carries out its work relating to the care and welfare of beneficiaries, the charity’s beneficiaries have been or were put at significant risk of abuse or mistreatment.

6

Breaches of law or the charity’s trusts

Single or recurring breach(es) of either a legislative requirement or of the charity’s trusts leading to material charitable funds being misapplied.

7

Breach of an order or direction made by a charity regulator

Evidence suggesting a deliberate or significant breach of an order or direction made by a charity regulator under statutory powers including suspending a charity trustee, prohibiting a particular transaction or activity or granting consent on particular terms involving significant charitable assets or liabilities.

8

Modified audit opinion or qualified independent examiner’s report (including emphasis of matter or material uncertainty as to going concern)

On making a modified audit opinion, emphasis of matter, material uncertainty related to going concern, or issuing of a qualified independent examiner’s report identifying matters of 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.

9

Conflicts of interest and related party transactions

Evidence that significant conflicts of interest have not been managed appropriately by the trustees and/or related party transactions have not been fully disclosed in all the respects required by the applicable SORP, or applicable regulations.