Audit or Independent Inspection

Audit or Independent Inspection

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I have been asked to present a summary of the pros and cons of opting for an independent examination instead of an audit for a small charity.  I have not been involved in audit work, but have experience on independent examinations.  I would appreciate the view point of others regarding this issue and what safegaurds may be lost by not having an audit.   I am aware that there is a perception that an audit offers a siginificant safegaurd to charity donors, regarding the use of these funds. and am concerned that withdrawing from an audit may arouse suspicions that there is something to hide.

I would really appreciate some opinions on this.

Replies (3)

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Teignmouth
By Paul Scholes
08th Apr 2010 18:22

Good question

These days and certainly if the charity is of a size where it can opt for either I would say that cost could be a determing factor.  As I sole practitioner auditor I'm a dying breed and there's no doubt in my mind that audits will become the preserve of medium to large practices, not because the basic work is any more onerous but because of the regulatory hoops I have to jump through today to show that I carried out the same work I did 5 years ago.

So, for an exam of a small charity I might quote a fee of £650 to £900 whereas for an audit I would be looking at £2.5K to £3K.  I'm sure this is not typical as a larger firm, more tuned to doing the work, might come in under that but audits are still far more involved and costly.

Although it may be secondary I would also mention the disruption to staff of being subject to audit rather than exam, the hoops are not just for the auditor.

These days the examination directions are far more comprehensive than they used to be, especially in the area of "know your client" and I actually end up using my auditor's brain in much of the work.  Consequently, to my mind, an examination gives reasonable assurance that if anything nasty was going on it would be unearthed.

Chances are you will already have knowledge of this but if not review the Commissions guidance on this topic on the following link to get a feel for the difference.

http://www.charity-commission.gov.uk/Charity_requirements_guidance/Accounting_and_reporting/Auditing_accounts/default.aspx

The trustees have to decide whether the extra cost and disruption to staff is worth the perceived additional assurance from an audit, I say perceived because I can think of situations where I was 85% there as far as full assurance was concerned, carrying out an exam and doubt whether the extra 15% would be worth my or my client's time.

Good luck and would be interested to hear other views.

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By User deleted
09th Apr 2010 10:10

It depends....

If the charity is close to the threshold (500k income or income 100k PLUS gross assets>2.8m), I would suggest you stick with the audit. This is because, should you go over the threshold in subsequent years, the auditor will be faced with the problem of auditing opening balances, which is problematic, particularly when dealing with unrestricted and restricted reserves.

I don't think you should worry too much about suspicions of anything to hide - in this heavily regulated world, we are all entitled to take advantage of all concessions available, especially because of the cost implications in a tough economic climate.

Having said that, an audit has to be performed by a registered auditor (last time I looked) whereas an independent examination does not even require a qualified accountant. In my view - and not because of snobbery - I feel this is less valuable if you want to give assurance to charity donors.

Hope that gives some ideas to think about.

SA

 

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By User deleted
09th Apr 2010 16:56

Audit or Independent Inspection

 

Thanks to both ofyou for taking the time to reply, it really has helped me to formulate the pros and cons of either option.

 

 

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