On the 19th May the Charity Commission (in partnership with the OSCR and CCNI) has announced an invitation to comment on the way charities report matters of material significance to a UK charity regulator.
It is obvious to see that this new consultation has been driven largely by the collapse Kids Company and the, often spoken about, failure of the Charity Commission and Kids Company’s auditors to spot the financial problems that had long been recorded in their annual accounts.
One of the biggest proposals is to consider whether the wording of “significant” should be changed so that auditors should report on “material” risks. These risks have to present a concern that the reported issues present a “risk to charitable funds or assets”. The consultation also raises the possibility of increasing the matters of material significance from either to ten in England, Wales and Scotland.
The first of these two additions require an auditor or independent examiner to report to the relevant charity regulator as soon as they issue a modified audit opinion or qualify their independent examiner’s report. The second addition would look into whether auditors and independent examiners should report to the regulator where there is evidence that, without reasonable cause, trustees have not taken action on matters that have been identified by auditors/examiners.
While CFG thinks that the proposals in the consultation will help to increase consistency in language between reporting matters of material significance and the SORP, we are concerned with how the Commission will use the information it receives from auditors or independent examiners.
Any wording that is changed would need to go alongside greater clarity from the Charity Commission, OCSR and CCNI about the kind of issues that mark out charities as being regulatory risks. With increased budget cuts to regulators there is also a danger that regulators will not be in a position to use and act upon the increased information they receive.
CFG would like the Commission to outline how it is going to use greater reporting to support its risk-based approach to regulation so that all stakeholders understand the value of the changes. We will engage with our members and accountancy professionals to get their views as part of this process before the closing date of 11th September; with new guidance expected by the end of 2016. Now charities can excitedly wait to see what other consultation the regulators will publish in the coming months because as they say three is a magic number.
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