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Charity audit advice

To qualify or not to qualify

I have a non-company charity audit. There were a few related party transactions where it cannot be proved that the trustees acted in a truly independent manner, they certainly had a conflict of interest problem and there is potentially financial self-interest, this is clearly in breach of Charities Act regulations.

Other than the above, the figures themselves have been fine,. My initial thoughts were to prepare an unqualified unmodified audit report in that the figures/accounts gave a true and fair view. Disclosure of the breaches and conflict issues were to be provided in a detailed 'other matter' paragraph on the audit report that alerts readers to salient points.

A brief discussion with the Charities Commission however has suggested that they believe these conflict issues should result in a qualified audit opinion, on the basis of governance issues. Having read various practice notes and audit guidance the nearest relevant issue that I could qualify on would be breach of laws and regulations in that the breaches of the Charities Act could result in the termination of the charity.

I would very kindly welcome any thoughts on this as it's not a particular audit issue I've come across befeore and cannot find an example of a similar charity audit report.


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21st May 2016 20:16

Are you saying that the transactions were done on arms length terms & in the best interests of the charity but that proper procedures were not followed to the letter, or are you saying that the transactions were not in the interests of the charity but were in the interests of individual trustees?
Have you looked at

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to runningmate
17th Jun 2016 13:47

Apologies Runningmate for overlooking your reply, I really dislike this new Aweb!

Apologies for the lack of detail. There were a couple of interest-free loans to related parties and trustees and also a couple of trading relationships between the charity and a connected party (which was a mutually beneficial arrangement).

Probably my main issues:
1. There were insufficient trustees for an independent decision to be made
2. They didn't take any steps to deal with the conflict
3. The loans were interest-free so not in the financial interest of the charity
4. The loans were not within the charities objectives

The charity did not ultimately lose out financially but were put at potential financial risk of bad debt for a period of time. The issues therefore all really relate to a lack of governance/internal control/self-interest. They have all since been resolved at no loss to the charity due to full repayment of the loans and the trading relationship now ceasing.

I can't see a material financial uncertainty/qualification required, hence my initial decision towards an emphasis of matter. The trustees may get a rap over the knuckles for poor governance but I do not anticipate the Charity Commission terminating the charities existence, so a going concern qualification doesn't seem appropriate either.
The trustees will probably accept whichever audit opinion is given, I would just like clarification on whether a qualified opinion is most suitable, and if so whether poor governance is sufficient enough reason.
Thanks for the link, I had indeed looked at this and the Charities Commission are aware of all issues, infact very much interested!
Many thanks for any assistance.

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17th Jun 2016 14:04

I wonder if the Trustees would agree to a note in the accounts setting out briefly what had happened & saying that it has now all been sorted & there are no issues going forward (& that Charities Commission are aware of what happened).
Then IMHO an emphasis of matter para referring to the note would 'do the job'.

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