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The Independent Examination of Receipts & Payments Accounts

Chris Smith FCIE

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Charity Accounting - Funds

FUNDS

Restricted Unrestricted

Endowment Income

Permanent Expendable

Designated General

Receipts & Payments Accounts

Summary of cash received and spent via bank and cash

Along with a statement of assets and liabilities

No adjustments made for timing of activities

Purchase or sale of assets included in receipts or payments

Changes in value of assets not included

Do not show a “true and fair view”

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Receipts & Payments Accounts

Distinguish between unrestricted, restricted and endowment funds

Income and expenditure reported gross – no netting off

Income and expenditure summarised by nature or activity

Must show surplus or deficit for the year

Must show any transfers between funds

Must show comparable previous years figures

Trustees Annual Report and Statement of Assets and Liabilities must be signed and dated by charity trustee

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Trustees Annual Report

An independent examiner or auditors report

Statement of Receipts and Payments

Statement of Assets & Liabilities

May also have a notes section for further information and required disclosures

The Content of Receipts & Payments Accounts

What is an Independent Examination?

Form of external scrutiny of charity accounts

A statutory report to accompany the accounts

Subject to legislation and regulation:– The Charities Act (Northern Ireland) 2008– The Charities (Accounts and Reports) Regulations (Northern Ireland)

2015

Directions and Guidance from CCNI– ARR07 Guidance for Independent Examiners (includes the Directions to

independent examiners– ARR03 Receipts and payments accounts guidance

Required skills and experience to examine R&P accounts

Financial awareness and numeracy skills Knowledge and understanding of:

– 2008 Act and 2015 Regulations– Different types of funds– Responsibilities of trustees– Role of the charity’s governing document

Do not need knowledge of: Accounting standards The Charities SORP

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The 12 Directions to carrying out an independent examination

1. Examination & accounting thresholds

2. Independence

3. Documentation

4. Understand the charity

5. Check accounting records are kept & not materially misstated

6. Check the accounts are consistent with the accounting records

7. Check that any identified conflicts of interest and/or related party transactions were properly authorised and appropriately disclosed

The 12 Directions to carrying out an independent examination

8. Analytical review – identify items to review and follow up for further information

9. Check the form and contents of accounts

10. Check the reasonableness of significant estimates, judgements and accounting policies, used in the preparation of accounts - does not apply to R&P accounts

11. Compare the trustees’ annual report with the accounts for consistency

12. Write and sign the independent examination report

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Direction 1: Examination and accounting thresholds – check whether the charity is eligible to have an independent examination

To prepare and examine R&P accounts:Gross income of £250,000 or less with:No constitutional requirement for auditNo grant conditions that require an audit

Gross income for R&P accounts is defined asTotal receipts for all sources, excludingEndowment incomeLoansProceeds from sale of investments or fixed assets

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Direction 2: Independence - check for any conflicts of interest that prevent you as the examiner from carrying out your independent examination

No connection, real or perceived, that might inhibit an impartial examination

Not a trustee or holding custodian trustee or close family of such

Not an officer, agent or a member of the key management personnel of the charity or spouse of such

Not a major donor or beneficiary or spouse of such

Not a person with a significant financial or commercial relationship with the charity

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Direction 3: Documentation – record your independent examination

Letter of engagement Copy of governing document Notes of meetings with trustees and staff Any matters of judgement Notes of areas of concern and how these have been resolved Details of checks or vouching carried out and conclusions

reached Breakdown of aggregated figures in the accounts and trial

balance Copies of the accounts and trustees report Kept for 6 years

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Direction 4: Understanding the charity – plan your independent examination

Review the governing document to understand purposes, powers and obligations

Discussion with trustees and/or staff to understand the activities, aims and objectives to achieve purposes

Understand any special circumstances or problems Review minutes of trustee meetings Details of accounting records held Any matters to report to the Commission Plan the examination in context of finding from above and charity size

and complexity of charity

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Direction 5: Check that accounting records are kept and not materially misstated

Records must:

• show & explain money received & spent day by day• record assets and liabilities• show financial position at any time• produce statement of account

Appropriate for the size, scale and nature of the charity’s transactions

At least a cash book, bank statements, vouchers and asset register. But may also be payroll records, files of unpaid invoices and amounts receivable

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Direction 5: Check that accounting records are kept and not materially misstated

Day to day• Transactions written up as they occur• Individual transactions• Show source of transaction (e.g. payee, supplier)• Distinguish between funds

Accurate and complete• Bank reconciliations

Assets and Liabilities• Fixed asset register• Unpaid invoice file• Debtors tracked

Direction 6: Check that the charity accounts are consistent with the accounting records

Compare the accounts with the underlying records to be satisfied that the accounts do:

Show the income and expenditure of the charityProperly identify and disclose any restricted and endowment fundsShow the correct balance of cash funds held at the year end

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Direction 6: Check that the charity accounts are consistent with the accounting records

Test or check the accounts against:Trial balance (if prepared)Cash book totalsFinal reconciliations and bank statementsPayroll summariesUnpaid invoice fileAmounts receivable file

No need to check against source documents, such as invoices or receipts, unless concerns arise that are not resolved by explanations from trustees or staff

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Direction 7: Check that any identified conflicts of interest and/or related party transactions were properly authorised and appropriately disclosed

Disclosure not a requirement for receipts and payments accounts

However is considered good practice If disclosed examiner must consider if:

– Trustees have followed CCNI guidance on conflicts of interest

– Relevant records have been kept Consider if a duty to report to the CCNI arises and implications

for examiners report

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Direction 8: Analytical review – identify items to review and follow up for further information

Review accounts for significant or unusual items, inconsistencies with other financial information and that correct disclosures have been made

Compare with previous years figures, budgets or forecasts Is income consistent with known fundraising sources? Is expenditure consistent with activities and charitable purposes? Are all significant assets and liabilities listed Are assets held consistent with the scale and type of activities Are transactions with trustees and related parties correctly disclosed Record all checks and tests and conclusions reached

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Direction 8: Analytical review – identify items to review and follow up for further information

Make enquiries of client trustees or staff

Verify to source documentation only if explanation unsatisfactory

Draw conclusions• Will it affect detail of other work• Will it impact on examiners statement

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8. Analytical review - Materiality

No formal definition

Size of error in relation to size of charity

Consider nature of error

Consider reputational damage

Beware of cumulative impact of small errors

Key test:Does error alter the overall “picture” the accounts portray?

Management letter?

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8. Analytical review - Exercise

Review the financial statements for Anytown Nursery.

What checks, tests or analytical procedures would you want to carry out?

Direction 9: Check the form and contents of accounts

Check that the charity can lawfully prepare R&P accounts under section 64 of the Charities Act (Northern Ireland) 2008

Check that all the accounting statements are present:– Trustees Annual Report– Statement of Receipts & Payments– Statement of Balances

Check that the funds of the charity are correctly identified

If Balance Sheet present treat as accruals accounts unless there are no non-cash items.

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Direction 11: Compare the trustees’ annual report with the accounts for consistency

Are figures in annual report and accounts consistent?

Is narrative in annual report consistent with the financial statements?

Do the reserves identified in the annual report agree with the unrestricted funds held at the year end in the financial statements?

If material inconsistencies consider implications for the examiners report

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Direction 12: Write and sign the independent examination report

Stand back and reflect on accounts and work done

Any further discussions or questions for trustees?

Draw conclusions

Negative assurance

Direction12. Examiners report – Factual information

Examiners name, address and any relevant qualification

Name of charity

Financial of accounts to which report relates

Examination carried out under section 65 of the Charities Act

Examination conducted in accordance with the Directions given by the Commission

Signed and dated by examiner – never before accounts agreed by trustees

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Direction 12. Examiners report – Examiners statement

Is there any reason to believe that in any material respect

The charity has not kept accounting records that comply with section 63 of the Act

The accounts do not agree with those records? The accounts do not comply with the requirements of the Act and

Regulations, There is other information needed for readers to understand the

accounts? The charity has spent money or carried out activity out-with its

charitable purposes or the restrictions placed on some funds? That information has been withheld from the examiner?

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Direction 12. Qualified Report

Cannot answer ‘no’ to all 6 questions

Need to highlight the areas of concern in the report

Separate paragraph for each concern– Nature of concern– Financial effect on the accounts (if any)

Clearly state that all concerns are detailed

Example Reports in Commission guidance

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Duty to report to the Commission or other authorities

Proceeds of Crime Act 2002 and Serious Organised Crime and Police Act 2005

Reporting to the Commission under section 67 of the 2008 Act:

– Mandatory If materially significant to the Commission

– Discretionary - If likely to be relevant to the Commission

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Duty to report to the Commission

Examiner is not looking for misconduct

Report where:– Dishonesty, fraud or significant loss to charity– Money laundering or funds come from proceeds of crime or used

to support terrorism– Risk to beneficiaries – Significant or recurring breaches of legislation or charity’s trusts

Joint Guidance from OSCR and Charity Commissions for NI and E&W

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Summary

Statutory appointment Often a dual role – maintain the distinction between the two Ensure you have the required skills, experience & qualification Fully understand the requirements of the Act and Regulations Plan and record your work Maintain independence of judgment and conclusions

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Help and Support

Guidance from CCNI– ARR01 Charity reporting and accounting overall summary– ARR02 Charity reporting and accounting the essentials guidance– ARR03 Receipts and payments accounts guidance– ARR07 Guidance for independent examiners– Receipts and Payments toolkit and example accounts– Template examiners reports - supporting document for independent examiners

Join Association of Charity Independent Examiners– Training– Regular information mailings & newsletters– Helpline– www.acie.org.uk

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ACIE - Membership

Affiliate

Associate - R&P to £100,00- R&P to £250,000- R&P to £250,000 and accruals to £100,000- All accounts to £100,000- All accounts to £250,000

Fellow - All accounts to the legal limit for IE

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ACIE – Applying for full membership

Join as an affiliate Review your knowledge and experience against ACIE checklist Prepare two sets of accounts appropriate to the category of

membership you wish to apply for If not able to carry out IE get someone else to do the IE Complete application form with questions on theory and

practice of IE

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Any questions?