ICAEW has produced guidance to assist auditors who are engaged to report on the proceeds of lotteries under the Gambling Commission’s Licence Conditions and Codes of Practice (LCCP).
The applicable assurance framework for this guidance is the International Standard on Related Services (ISRS) 4400 (Revised): Agreed-Upon Procedures Engagements.
In April 2020, this standard was revised to increase accountability in relation to funding and grants, effective for agreed-upon procedures (AUP) engagements for which terms of engagement are agreed on or after 1 January 2022.
Non-commercial societies or local authorities that operate non-exempt lotteries in Great Britain are required to obtain a license from the Gambling Commission.
Under section 11.1.1 of the Commission’s Licence Conditions and Codes of Practice (LCCP), for any calendar year in which the cumulative proceeds of lotteries promoted by the society or local authority exceed £1,000,000, the licensee must provide the Commission with written confirmation from a qualifying auditor confirming that the proceeds of those lotteries have been fully accounted for in their annual audited accounts. Such confirmation must be provided within 10 months of the date to which the accounts are made up.
As the LCCP does not specify the form of report or procedures to be performed, ICAEW has produced this guidance to assist auditors in complying with the requirements when engaged to report on the proceeds of lotteries under the LCCP.
Eligibility
The LCCP specifies that only a “qualifying auditor” can provide the required confirmation. A qualifying auditor is defined as a Responsible Individual who is approved to carry out the statutory audit of annual accounts or consolidated accounts and is listed on the audit register.
There is no requirement for the “qualifying auditor” engaged by the licensee to provide the relevant confirmation to be the current statutory auditor of the society or local authority.
In addition, where lotteries are promoted by or on behalf of a non-commercial society, the auditor must not be:
(a) a member of the society;
(b) a partner, officer or employee of such a member; or
(c) a partnership of which a person falling within (a) or (b) is a partner.
Timeframe
The confirmation must be provided within 10 months of the date to which the licensee’s audited accounts are made up. However, within the LCCP the requirement to obtain a confirmation is linked to the cumulative proceeds of lotteries promoted within a calendar year rather than within the licensee’s accounting period. This means that there is potential for timing differences to arise if the licensee’s financial year end is not 31 December.
It is important for licensees to keep track of the timing of lotteries and be aware of the specific draw date where lottery proceeds for the calendar year exceed the £1m threshold, as this will affect the date that the Gambling Commission requires the confirmation to be provided by.
Example
In a scenario where a licensee has a financial year end of 31 March 20X4, the date that confirmation is required depends on when the threshold is exceeded. If the threshold is exceeded in January, February or March, then the proceeds will be reported in the entity’s 20X3/20X4 financial statements, and auditor confirmation will be required by 31 January 20X5.
However, if the threshold is exceeded from April onwards, then the proceeds will be either fully or partially reported in the entity’s 20X4/20X5 financial statements. Confirmation will then be required by 31 January 20X6.
In situations where multiple draws have taken place on either side of the licensee’s financial reporting period, which contribute altogether to £1,000,000 or more of proceeds in a calendar year, the proceeds will be partially reported in the entity’s 20X3/20X4 financial statements and partially in the 20X4/20X5 financial statements. In this case, confirmation would be required by 31 January 20X6, and the auditor should refer to both sets of financial statements in their confirmation.
Procedures
An engagement to report on the proceeds of lotteries organised by non-commercial societies or local authorities under the LCCP is generally performed as an AUP engagement under ISRS 4400 (Revised), Agreed-Upon Procedures Engagements. The auditor would be engaged to perform a specific set of steps and produce a factual report without providing any assurance.
The licensee will prepare a document detailing the proceeds of each lottery draw that took place during the calendar year. The procedures that the auditor would then be engaged to perform may include the following:
- To obtain a copy of the licensee’s submission (or submissions) to the Gambling Commission and agree the proceeds of lotteries from this document to the accounting records, which have been reconciled to the financial statements.
An illustrative engagement letter is included as Appendix 1 to ISRS 4400 (Revised).
The auditor's duty of care when reporting on the proceeds of lotteries
Auditors must be careful to ensure that all parties are aware of the limitations of an AUP engagement.
For further information on the auditor’s duty of care and example disclaimer wording that can be used in the engagement letter or AUP report, see ICAEW Technical Release 10/12 AAF (Revised), Reporting to Third Parties.
The illustrative engagement letter in Appendix 1 of ISRS 4400 (Revised) also contains example wording.
Reporting
For this kind of engagement, the engaging party and the addressee of the report would be the non-commercial society or local authority licensee that has been operating the lotteries. However, it is expected that the commercial society or local authority licensee will share this report with the Gambling Commission, on a non-reliance basis.
Disclaimer
ICAEW will not be liable for any reliance you place on the information in this material. You should seek independent advice.