The Charity Commission is consulting on new guidance for charities’ external examiners to try to improve the scrutiny of charity finances in the wake of the collapse of Kids Company last year.
In a consultation released today on the commission’s CC32 guidance on the external scrutiny of charity accounts, the Charity Commission suggests new proposals relating to examiner independence, conflicts of interest, the disclosure of related party transactions and charities’ financial sustainability.
This includes ensuring independent examiners are not influenced by relationships with a charity’s trustees, funders or staff, and that examiners disclose in the notes to a charity’s accounts any "material uncertainties" that would cast doubt on its financial viability.
The commission also recommends that charities’ consolidated accounts should be independently examined.
The guidance under consultation will apply to charities with an income of more than £25,000, which must have some form of external scrutiny, audit or independent examination by law.
The regulator says that the guidance would be "expected practice" rather than "recommended practice".
The consultation follows last year’s high-profile collapse of Kids Company and the subsequent changes in expectations of the charity sector. It comes after the Public Administration and Constitutional Affairs Committee’s report into the charity’s demise criticised Kids Company’s auditors and independent examiners for their lack of scrutiny of the charity’s finances.
The Charity Commission says that the new guidance was also influenced by recent changes in the thresholds for audit, which have meant that audits are now only mandatory for charities with a gross income of more than £1m, and the commission’s recent consultation on matters of "material significance", which covers issues auditors have to report to the charity regulator.
Nigel Davies, head of accountancy services at the Charity Commission, said: "Independent examination is an important form of external assurance to trustees, to the commission and to those using charity accounts. An update to the framework is needed.
"We want your views on whether our proposals will improve the independent examination framework and so maintain the confidence of trustees, donors and the public in the accounts of smaller charities."
Don Bawtree, partner at accountancy firm BDO, said the consultation is a response to the raising of the audit thresholds and "keeping pace with changes in assurance work reflected in the audit market" and proposes "a simpler report, which is good".
But he also added that some smaller examiners "may feel it looks as though too much is being required now".
The consultation will close on 30 September, with the reforms due to come into effect for accounts filed in or after March 2017.