Independent Examiner – Eligibility and Skills

Independent Examination of Accounts CC32Charity law requires those charities with a gross income threshold of more than £25,000 to have some form of external scrutiny of their accounts. The trustees may opt for an independent examination if their charity’s income is not more than £1m, or where gross income exceeds £250,000

The appointment of an independent examiner is made by the trustees who must reasonably believe that the person selected has the requisite ability and practical experience to carry out a competent examination of the accounts.

The skills required of an examiner will depend on whether accounts are prepared on a receipts and payments basis or an accruals basis, and the size and nature of the charity’s transactions.

All examiners need some familiarity with certain basic principles of fund accounting, the responsibilities of trustees, and the charity’s governing document.

A person with financial awareness and numeracy skills should have the requisite ability to act as an independent examiner for receipts and payments accounts.

For accruals accounts the examiner should have a good understanding of accountancy principles, accounting standards and knowledge of the applicable SORP.

Depending on the complexity of the charity to be examined, prospective examiners may also need to have practical experience relevant to the charity in question which might include:

  • an involvement in the financial administration of a charity of a similar nature
  • having acted successfully as an independent examiner on previous occasions for similar charities
  • relevant practical experience in accountancy or commerce
  • a working knowledge of charity accounting

Independent examination of accruals accounts

Having the requisite ability is important to ensure that the examiner undertakes a competent examination. A competent examination is one conducted with reasonable skill and care in accordance with the Directions for independent examination. Trustees who have had the charity’s accounts prepared on an accruals basis should select a person who is a member of one of the accountancy bodies listed in the 2011 Act as amended by the 2015 Order.

The examiner should be satisfied that they have the requisite ability with the necessary skills before undertaking the examination of accounts prepared on the accruals basis. When examining accounts prepared on an accruals basis the examiner should be a member of one of the accountancy bodies listed and the examiner must be a member of a listed body if the charity’s gross income exceeds £250,000.

The listed bodies are:

  • Institute of Chartered Accountants in England and Wales
  • Institute of Chartered Accountants of Scotland
  • Institute of Chartered Accountants in Ireland
  • Association of Chartered Certified Accountants
  • Association of Authorised Public Accountants
  • Association of Accounting Technicians
  • Association of International Accountants
  • Chartered Institute of Management Accountants
  • Institute of Chartered Secretaries and Administrators
  • Chartered Institute of Public Finance and Accountancy
  • Fellow of the Association of Charity Independent Examiners
  • Institute of Financial Accountants
  • Certified Public Accountants Association

Debtor, Creditor, Accrual, Prepayment

Debtors and CreditorsSometimes it is difficult to know how to account for transaction invoices that have been issued and not paid by the end of the financial year, either to your organisation or from your suppliers.

Your accounts are not based on the money that was actually paid or received in the financial year, they are based on what should have been paid or received.  

The following definitions may help you as you prepare your accounts for the Independent Examiner.

Debtors – A debtor is one party who owes money to another – for example, clients or customers who have not yet paid in full for any goods or services that your organisation has already supplied to them, are debtors to your organisation.

If this debt occurs before the end of one financial year, but is then paid in the next financial year, it should be included in first financial year’s accounts and recorded as a debt.

Creditors – A creditor is one party who is owed money by another – for example, suppliers who have provided your organisation with any goods or services that have not yet been paid for in full are creditors of your organisation.

Prepayments – A prepayment is when you pay an invoice or make a payment for more than one period in advance. For example, you may pay for your rent for three months in advance but want to show this as a monthly expense on your profit and loss.  Prepayments are a type of debtor.

Accruals – An accrual is when you pay for something in arrears. For example, you may receive an invoice for your electricity at the end of a quarter but want to record the payments before this. An accrual is usually based on an estimate. Therefore, when the invoice is received, you may need to make an adjustment to the final amount. An accrual is a type of creditor, money that you owe.