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Telford Financial Training Ltd
Charity Accounts and Audit Update
Bill Telford BA FCA
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Telford Financial Training Ltd
Introduction
Chapter 1
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Charity sector under pressure
o Increased
o Scepticism
o Scrutiny
o Challenges by CC
o Registration
o Monitoring
o Implementation of new UK GAAP
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Issues concerning the Charity Commission
o Charity News 57 – 5
o Other issues
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Effective trustee management
o Last year
o Managing charity finances, planning, managing difficulties and insolvency (CC 12);
o Charity reserves: building resilience (CC 19);
o Charity governance, finance and resilience: 15 questions trustees should ask
o July 2017 Charity Governance Code
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Updated Charity Governance Code
o Two versions
o Key principles
o Organisational purpose
o Leadership
o Integrity
o Decision-making risk and control
o Board effectiveness
o Diversity
o Openness and accountability
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Charities, terrorist financing and fraud
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CIO conversions – Company to CIO
Date Annual income
1 January 2018 Less than £12,500
1 March 2018 Between £12,500 and £25,000
1 May 2018 Between £25,000 and £100,000
1 June 2018 Between £100,000 and £250,000
1 July 2018 Between £250,000 and £500,000
1 August 2018 Greater than £500,000
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Fundraising
o The disqualification of those who have
committed certain offences from acting as
a trustee or taking certain roles within a
charity;
o New rules relating to agreements with
charities with professional fundraisers and
commercial participators; and
o New requirements for disclosures in the
trustees’ report of larger charities.
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Fundraising - Trustees’ duties
o Planning effectively; o Supervising your fundraisers; o Protecting your charity’s reputation, money
and other assets; o Identifying and ensuring compliance with the
laws or regulations that apply specifically to your charity’s fundraising;
o Identifying and following any recognised standards that apply to your charity’s fundraising;
o Being open and accountable
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Fundraising - Reporting requirements
o Large charities
o Required periods commencing on or after
1 November 2016
o Small charities?
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Reporting requirements o The fundraising approach taken by the charity, by
anyone acting on its behalf, and whether a professional fundraiser or commercial participator carried out any fundraising activities;
o Details of any fundraising standards or scheme for fundraising regulation that the charity has voluntarily subscribed to;
o Details of any fundraising standards or scheme for fundraising regulation that any person acting on behalf of the charity has voluntarily subscribed to;
o Details of any failure by the charity, or by any person acting on its behalf, to comply with fundraising standards or scheme for fundraising regulation that the charity or the person acting on its behalf has voluntarily subscribed to;
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Reporting requirements (2) o Whether the charity monitored the fundraising activities
of any person acting on its behalf and, if so, how it did so;
o The number of complaints received by the charity, or by a person acting on its behalf for the purposes of fundraising, about fundraising activity;
o What the charity has done to protect vulnerable people and other members of the public from behaviour which: o Is an unreasonable intrusion on a person’s privacy; o Is unreasonably persistent; and
o Places undue pressure on a person to give money or other property.
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Disqualification of trustees and senior
managers
o Previously limited application:
o Individual currently holding office as
trustee;
o Matters arising from misconduct or
mismanagement
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Statutory criteria
o One of six criteria must be met
o Commission satisfied that person unfit to
be a trustee
o Commission satisfied that in public interest
to be dis qualified
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The six offences A. A person has been cautioned for an offence against a
charity or in the administration of a charity for which a conviction would bring automatic disqualification;
B. A person has been convicted of an offence in another country that:
o Is against, or involves the administration of, a charity or similar body, and
o Is committed in the United Kingdom would bring automatic disqualification from acting as a trustee.
C. A person has been found by HMRC, not to be a ‘fit-and-proper person’ to be a manager of a body or trust.
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The six offences D. A trustee, officer, agent or employer of a charity was
responsible for, contributed to or facilitated misconduct or mismanagement in a charity or the person knew of the misconduct or mismanagement and failed to take any reasonable step to oppose it.
E. An officer or employee of a corporate trustee was responsible for, contributed to or facilitated misconduct or mismanagement in a charity or the person knew of the misconduct or mismanagement and failed to take any reasonable step to oppose it.
F. Other conduct, whether or not in relation to a charity that is, or is likely to be, damaging to public trust and confidence in a charity or charities.
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Extension to senior managers
o CEO / CFO equivalent
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Charity Accounts – CC feedback
Chapter 3
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Registered charities required to file o Have the trustees filed all the requested documents that make
up a set of accounts (the annual report, independent scrutiny and accounts) and are they transparent and internally consistent in what is reported?
o Does the annual report explain what activities the charity had carried out during the year to achieve its purposes?
o Have the accounts been subject to the required level of independent scrutiny based on the charity’s gross income and assets, either an audit or independent examination?
o Have the accounts been prepared on the correct basis depending on the charity’s income and type, either receipts and payments or accruals accounts?
o Do the accounts contain both a SoFA that analyses expenditure and balance sheet and are they consistent with each other (or the equivalent if receipts and payments were prepared.)?
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Findings – 25% of 107 not met standard
o The accounts as a whole were inconsistent or not transparent (3 charities):
o The accounts did not balance or were not complete (8 charities);
o A proper independent examination had not been carried out (4 charities);
o The annual report did not cover the charity’s objectives and / or its charitable activities (9 charities);
o The annual report, independent scrutiny report and / or the accounts were missing (3 charities).
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Income < £25,000
o Have the trustees provided both an annual
report and accounts?
o Does the annual report explain what activities
the charity had carried out during the year to
achieve its purposes?
o Do the accounts include both an analysis of
receipts and payments and a statement of net
assets and liabilities and are these consistent
with each other (or the equivalent if accruals
accounts are prepared)?
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Findings – 49 (45%) did not meet standards
o Neither the annual report nor the accounts
were provided (10 charities);
o Either the annual report or the accounts
was provided (17 charities);
o Both were provided but key information
was missing (22 charities).
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SORP information sheet 1
Chapter 4
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Where are we now?
1/1/2015
31/12/15
31/12/16
31/12/17
31/12/18
31/12/19
Large and
medium
Small
16/3/18 Revised FRS 102
16/3/18
Early
adopt?
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Cash flow statements
o Originally FRS 102 only permitted
qualifying entities to adopt the reduced
disclosure exemptions if approved by the
shareholders
o This was removed for periods beginning on
or after 1 January 2016
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Information sheet 1 confirms
o It otherwise applies the recognition, measurement and disclosure requirements of the FRS.
o It discloses in the notes to its financial statements:
o a brief narrative summary of the disclosure exemptions adopted; and
o the name of the parent of the group in whose consolidated financial statement its financial statements are consolidated and from where those financial statements may be obtained. (Only applicable to subsidiary entities)
o Includes disclosure requirements of Module 9
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Cash flow statement
o Required for all larger charities
o Income > £500,000
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The cash flow statement
FRS 1 FRS 102
o Cash flows from operating activities
o Dividends from joint ventures and associates
o Returns on investments and servicing of finance
o Taxation
o Capital expenditure and financial investment
o Acquisitions and disposals
o Equity dividends paid
o Management of liquid resource
o Financing
o Operating activities
o Investing activities
o Financing activities
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SORP Cash flow
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Fundraising disclosures
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Comparative figures for fund disclosures
o Comparative figures should be provided when making the disclosures required by paragraph 2.29 of the SORP for the summary of assets and liabilities of each category of fund of the charity and for the detail in the movements in material individual funds.
o The analysis of charitable funds will include fund movements from the beginning of the prior reporting period to the end of the prior period; and from the beginning of the current reporting period to the end of the current period. o Where the current and prior periods have been
12 months long, the charity will provide an analysis over a period of 24 months
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Governance costs
o For charities reporting on an activity basis, expenditure on raising funds, paragraph 4.44, should include any apportioned support costs.
o This includes those costs relating to the governance of the charity.
o Module 8 requires support costs to be analysed across all relevant activities and is illustrated in Table 4.
o Governance costs can therefore be allocated to all relevant activities, including expenditure on raising funds.
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Funding clawed back by funders
o Where there is a right to claw back
o Should income be recognised?
o Is a provision for clawback required?
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Definition
o Omissions from, and misstatements in, the
entity’s financial statements for one or more
prior periods arising from a failure to use, or
misuse of, reliable information that:
o Was available when financial statements for
those periods were authorised for issue; and
o Could reasonably have been expected to
have been obtained and taken into account
in the preparation and presentation of those
financial statements.
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Funding clawed back by funders
1/1/17
31/12/17
Income Clawback Clawback
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Disclose
o Material amounts of funds clawed back in
respect of previous years
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Exemption from disclosure of names of
related parties
o FRS 102 does not require disclosure of
names
o SORP does
o May be excluded or replaced by role if
there is danger to the individual
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Aggregate disclosure of total amount of
donations received without conditions
o Interpret in context of those transactions
with trustees and other related parties only
o Disclose if judged material in context of
total income from donations and legacies
o Disclosure is required of donations with
conditions
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Disclosure of employers NI
o Include in aggregate benefits of key
management employees
o Exclude from bandings
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Loss on disposal of fixed assets
o Loss = additional depreciation
o allocate to appropriate expense head
and activity in SoFA and notes
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Fair value reserve
o Fair value reserve does not appear in CA
formats
o But there are requirements / guidance on
treatment of such reserves
o Required E.g. Hedging instruments and
hedge accounting
o Permitted e.g. Investment property and
financial instruments at fair value
o CC recommends only use when required
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Disclosure of government grants
o Government =
o Government
o Government agencies,
o Similar bodies o whether local, national or international
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Definition of a larger charity
o Income > £500,000
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Gift aid and trading charities
Chapter 5
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The issues
1/9/16
31/8/16
31/8/17
Earn profit
Make payment
and obtain tax
relief
31/5/17
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The questions
The gift aid payment Tax relief
o Is it an expense or a distribution?
o When does company recognise the payment?
o Where does company report the payment?
o When to recognise?
o Where to recognise?
Distribution
When there is a
legal obligation
Statement of
changes in equity
In year profit
made
Profit or loss
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Illustration 10
o A trading subsidiary has a profit before tax
of £120,000. It has disallowable expenses
of £20,000 and tax is 20%. What is the
maximum amount of gift aid that it can pay
in respect of its first year of trading?
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Illustration 10
1/9/16
31/8/16
31/8/17
Profit
Make payment
and obtain tax
relief
31/5/17
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Illustration 11 Statement of comprehensive income
Turnover 676,502
Cost of sales (385,230)
Gross profit 311,272
Administrative expenses (4,232)
Operating profit 307,040
Other interest receivable and similar income 150
Profit before taxation 307,190
Tax (61,438)
Profit after taxation 245,752
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Illustration 11 (continued) Statement of changes in equity Share
capital
Profit
and loss
account
Total
equity
At 1 September 2015 100 Nil 100
Comprehensive income for the year
Profit for the year 245,752 245,752
Donation payable to parent under the gift aid
scheme (307,190) (307,190)
Tax relief obtained on the gift aid payment 61,438 61,438
At 31 August 2016 100 Nil 100
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FRS 102 S 29 Statement of comprehensive income
Turnover 676,502
Cost of sales (385,230)
Gross profit 311,272
Administrative expenses (4,232)
Operating profit 307,040
Other interest receivable and similar income 150
Profit before taxation 307,190
Tax -
Profit after taxation 307,190
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FRS 102 S 29
Statement of changes in equity Share
capital
Profit and
loss
account
Total
equity
At 1 September 2015 100 293,526 293,626
Comprehensive income for the year
Profit for the year 307,190 307,190
Donation payable to parent under the gift aid
scheme (293.526) (293,526)
At 31 August 2016 100 307,190 307,290
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Revisions to FRS 102
Chapter 6
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FRS 102 version control
o September 2015
o March 2016
o Fair value disclosures
o December 2016
o Notification
o March 2017
o Directors’ loans
o December 2017
o Triennial review, incremental improvements and clarifications
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Update Bulletin 2
o Amends SORP
o Contents
o Chapter 1 – Introduction
o Chapter 2 – FRC statement
o Chapter 3 – Clarifying amendments
o Chapter 4 – Significant amendments
o Chapter 5 – Other amendments
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Clarifying amendments
o Need for comparatives
o Unless specifically excluded
o Assets with two or more major components
o Impact of removing undue cost or effort
exemption
o Events after the balance sheet date
o Determination of a gift aid payment under
a constructive obligation removed
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Significant amendments
o Scope
o Investment properties
o See later
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Cash flow statements o An entity shall present cash flows from operating
activities using either: a) the indirect method, whereby a measure of
profit or loss disclosed in the statement of comprehensive income (or separate income statement) is adjusted for the effects of non-cash transactions, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows; or
b) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed.
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Choices in FRS 102
Interest paid Operating or financing
Interest received Operating or investing
Dividends paid Financing or operating
Interest received Operating or financing
Tax Operating unless can be attributed
to investing or financing
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Profit and loss account Turnover 2,000,000
Cost of sales (1,500,000)
Gross Profit 500,000
Other operating income 60,000
Distribution costs (50,000)
Administration costs (150,000)
Operating profit 360,000
Income from fixed asset investments 40,000
Interest payable and similar expenses (100,000
Profit before taxation 300,000
Taxation 60,000
Profit after taxation 240,000
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Original FRS 102
Profit for the year 240,0000
Adjustments which are not operating profit
items
Dividends receivable (?)
Interest payable (?)
Adjustments not involving cash flows
Depreciation
Changes in stock, debtors, creditors etc
Cash from operations
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New disclosure – Net debt analysis
o Definition o Net debt consists of the borrowings of a
charity, together with any related derivatives and obligations under finance leases, less any cash and cash equivalents.
o When several balances have been combined to form the components of opening and closing net debt, paragraph 14.17A requires sufficient detail to be shown to enable users to identify such balances.
o This analysis is not required in future periods.
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Illustration At start of
year
Cash
flows
New
finance
leases
Fair value
movemen
ts
Other
non-cash
changes
At end of
year
£ £ £ £ £ £
Cash 540 180 720
Cash equivalents 230 40 270
Overdraft (50) (10) (60)
720 210 930
Bank loans falling
due within one year
(900)
150
(450)
(1,200)
Bank loans falling
due after more than
one year
(1,100)
450
(650)
Finance lease
obligations
(650)
100
(350)
(900)
Current asset
investments
400
200
100
700
TOTAL (1,530) 660 (350) 100 - (1,120)
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Charity mergers
o The transfer of activities to a subsidiary is
now included as an example of a charity
reconstruction that may be accounted for
as a merger.
o A common example is the transfer of
non-charitable trading activities to a
trading subsidiary when small scale
exemptions cease to apply.
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Service potential
o is the capacity to provide services that
contribute to achieving a charity’s
objectives. Service potential enables a
charity to achieve its objectives without
necessarily generating net cash inflow.’
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Other amendments
o Revised definition of a financial institution
o Includes o Charitable incorporated friendly societies; and
o Charities that undertake lending at a market rate or to
achieve an element of market return (mixed motive
investments); but
o Excludes o Charities which provide concessionary rate finance in
the form of programme related investments, unless
such lending is the charity’s only principal or sole
charitable activity
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Module 11 Financial instruments
o Definitions
o Now uses ‘non-derivative instruments
that are equity of the issuer’ rather than
‘non-convertible preference shares and
non-puttable ordinary or preference
shares’
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Transaction costs
o If at amortised cost
o Taken into account in computing effective
interest rate
o If at fair value through SoFA
o Written off to profit ands loss
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New 11.9A o A debt instrument not meeting the conditions in
paragraph 11.9 shall, nevertheless, be considered a basic financial instrument if it gives rise to cash flows on specified dates that constitute repayment of the principal advanced, together with reasonable compensation for the time value of money, credit risk and other basic lending risks and costs (e.g. liquidity risk, administrative costs associated with holding the instrument and lender’s profit margin).
o Contractual terms that introduce exposure to unrelated risks or volatility (e.g. changes in equity prices or commodity prices) are inconsistent with this.
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Revised disclosures - Deleted o An entity shall disclose the carrying amounts of each of the following
categories of financial assets and financial liabilities at the reporting date, in total, either in the statement of financial position or in the notes:
a. * financial assets measured at fair value through profit or loss (paragraphs 11.14(b), 11.14(d)(i), 12.8 and 12.9);
b. financial assets that are debt instruments measured at amortised cost (paragraph 11.14(a));
c. financial assets that are equity instruments measured at cost less impairment (paragraphs 11.14(d)(ii), 12.8 and 12.9);
d. * financial liabilities measured at fair value through profit or loss (paragraphs 11.14(b), 12.8 and 12.9). Financial liabilities that are not held as part of a trading portfolio and are not derivatives shall be shown separately;
e. financial liabilities measured at amortised cost (paragraph 11.14(a)); and
f. loan commitments measured at cost less impairment (paragraph 11.14(c)).
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Replaced by
o An entity shall disclose separately the carrying amounts at the reporting date of financial assets and financial liabilities measured at fair value through profit or loss.
o This disclosure may be made separately by category of financial instrument.
o Financial liabilities that are not held as part of a trading portfolio and are not derivatives shall be shown separately.
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Module 18: Heritage Assets
o Fair value may now be assessed by
reference to a binding sales agreement,
identical or substantially similar assets,
o provided that the agreement is between
knowledgeable willing parties in an arm’s
length transaction.
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Module 21: Social investments
o Additional guidance that recent
transactions providing evidence of fair
value must be between knowledgeable,
willing parties in an arm’s length
transaction.
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Module 24: Group accounts
o A subsidiary may be excluded from
consolidation when its inclusion is not
material for the purpose of giving a true
and fair view (but two or more subsidiaries
may be excluded only if they are not
material taken together).
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Module 24: Group accounts
o Incorporates revised treatment of
intangibles
o Finally, the SORP adds a disclosure in
relation to the nature and extent of risks
associated with any interests in
unconsolidated entities
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Permitted not to recognise intangible assets
separately from goodwill
o Need not recognise assets acquired
separately from goodwill
o They may, on an asset by asset basis,
choose to separately recognise intangible
assets if this provides useful information
o If choose to recognise separate intangibles
must do so consistently
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Goodwill
Licence
Customer list
Domain name
Goodwill
Software
Order book
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Transition
o Not apply revised treatment for intangibles
to business combinations made after the
date of transition to FRS 102 but before
date of transition to updated FRS 102
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Effective date
31/12/16
31/12/17
31/12/18
31/12/19
First mandatory
period
Date of
transition
Restate Early
adoption
permitted
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3 types of client?
o New charities in their first year
o Charities yet to transition
o Charities who have already transitioned
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Charity Decision? Transitional issues
New charity
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Charity Decision? Transitional issues
New charity Early adopt None
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Charity Decision? Transitional issues
New charity Early adopt None
Charity yet to
transition
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Charity Decision? Transitional issues
New charity Early adopt None
Charity yet to
transition
Early adopt
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Charity Decision? Transitional issues
New charity Early adopt None
Charity yet to
transition
Early adopt Section 35 – as
amended
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Charity Decision? Transitional issues
New charity Early adopt None
Charity yet to
transition
Early adopt Section 35 – as
amended
Charity already
transitioned
Early adopt S 35 does not
apply but
disclosures in
chapter 10 do
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Investment property
Chapter 7
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Investment property
o No exemption for properties let to another
group member
o Unless involved undue cost or effort
o Mixed use property had to be included at
fair value
o Unless involved undue cost or effort
FRS 102 revision
December 2017 removes
the undue cost or effort
exemption
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Revised FRS 102
Let to group member Mixed use
o Accounting policy
choice
o Transitional
exemption to include
fair value as
deemed cost
o Only fair value if
could be sold or let
on a finance lease
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Transition
o Use fair value of investment property let to
another group member as deemed cost at
date of transition to updated FRS;
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Illustration 14 V Ltd has an investment property occupied by W Limited a
subsidiary which cost £250,000. The company has a 31
December year end and transitioned to FRS 102 1A for the
year ended 31 December 2016. V Ltd had previously
taken advantage of the exemption in SSAP 19 to treat the
property as tangible fixed assets, and not investment
property, but incorporated fair values on transition as
follows
31 December 2014 350,000
31 December 2015 380,000
31 December 2016 420,000
Advise the directors on the implications of the changes
introduced by the triennial review.
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Illustration 14
31/12/14
31/12/15
31/12/16
31/12/17
350,000 380,000 400,000
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Illustration 14 A charity owns the freehold of a four-storey office block. The ground floor is
sublet to its trading subsidiary which operates a retail outlet. A separate
subsidiary has an agreement to rent two offices on the top floor, sharing toilet
and kitchen facilities. There is no separate access or egress.
The charity qualifies as a small company, has a 31 December year end and
transitioned to FRS 102 for the year ended 31 December 2016.
It had previously taken advantage of the exemption in SSAP 19 to treat the
property as tangible fixed assets, and not investment property. On transition it
incorporated fair values on transition for the ground and first floors but used the
undue cost or effort exemption for the top floor. The cost for each of the ground
and first floors was assessed as £250,000 and the fair values incorporated in
the 2016 accounts were as follows:
31 December 2014 350,000
31 December 2015 380,000
31 December 2016 420,000
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Transfers
Investment Property
Inventory / Tangible fixed asset
Fair value of investment property
becomes deemed cost
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Tangible fixed asset
Investment property
Revalue to fair value before
transfer – gain to OCI and
revaluation reserve
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Inventory Investment property
Transfer to investment property at
fair value and recognise gain in
profit and loss
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Disclosures
o The following disclosures (other than those
related to fair value measurement) are
relevant to an entity that chooses to
measure investment properties rented to
another group entity under the cost model
in this section, as permitted by paragraph
16.4A(b).
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Disclosures
o An entity shall disclose the carrying
amount at the end of the reporting period
of investment property rented to another
group entity, when the entity has chosen to
account for such properties using the cost
model in accordance with this section (see
paragraph 16.4A).
o 17.31A
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Revised ISAs and charities
Chapter 8
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Audit requirements guidance
o ISAs (UK) and FRC Ethical Standards
o Effective for periods commencing on or
after 17 June 2016
o Practice Note 11
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The standards
o ISA 700 – now adopted IAASB version
o ISA 701 – Key audit matters
o Those required (or choose) to comply
with Corporate governance code;
o Other public interest entities;
o Where auditor chooses to communicate
key audit matters
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The standards
o ISA 705 – Modified opinion
o ISA 706 - Emphasis of matters
o ISA 710 - Comparative information—
corresponding figures and comparative
financial statements
o ISA 720 – Other information
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Misstatement of other information
o A misstatement of the other information
exists when the other information is
incorrectly stated or otherwise misleading
(including because it omits or obscures
information necessary for a proper
understanding of a matter disclosed in the
other information).
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Reports for periods commencing on or after
16 June 2016
Independent auditor’s report to the members [trustees] of [XYZ Limited] [XYZ]
Opinion
We have audited the financial statements of [XYZ Limited (the ‘company’)] [XYZ (the ‘charity’)]for the year ended [date] which comprise the statement of financial activities, balance sheet, cash flow statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
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Telford Financial Training Ltd
In our opinion, the financial statements: o give a true and fair view of the state of the
[charity’s] [charitable company’s] affairs as at [date] and of its incoming resources and application of resources for the year then ended;
o have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice;
o have been prepared in accordance with the requirements of [the Companies Act 2006] [the Charities Act 2011.].
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Telford Financial Training Ltd
o Basis for opinion
o We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the [charity] [charitable company] in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard [, and the provisions available for small entities, in the circumstances set out in note [X] to the financial statements], and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion
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Telford Financial Training Ltd
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
o the [directors’] [trustees’] use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
o the [directors] [trustees] have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the [charity’s] [charitable company’s] ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
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Telford Financial Training Ltd
Other information – ISA 720
o Does audit report require an opinion on
other information?
o If Yes – report as required and state
nature of work performed; o Charitable company
o If No – state that opinion does not cover
other information and report if there is a
material inconsistency or misstatement o Unincorporated charity / CIO
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Telford Financial Training Ltd
o Other information
o The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The [directors] [trustees] are responsible for the other information
o Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. [other charities - Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
o We have nothing to report in this regard.
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Telford Financial Training Ltd
o Other information
o The other information comprises the
information included in the annual report,
other than the financial statements and our
auditor’s report thereon. The [directors]
[trustees] are responsible for the other
information.
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Telford Financial Training Ltd
o [Charitable company] Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
o [Other charities] Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
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Telford Financial Training Ltd
o In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so,
consider whether the other information is
materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be
materially misstated.
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Telford Financial Training Ltd
o If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether there is
a material misstatement in the financial
statements or a material misstatement of
the other information.
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Telford Financial Training Ltd
o If, based on the work we have performed,
we conclude that there is a material
misstatement of this other information, we
are required to report that fact.
o We have nothing to report in this regard.
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Exception reporting – Charitable company
Matters on which we are required to
report by exception
In the light of the knowledge and
understanding of the charitable company
and its environment obtained in the course
of the audit, we have not identified material
misstatements in the [strategic report] or the
directors’ report included within the trustees’
report.
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Telford Financial Training Ltd
Company charities only We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
o adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
o the financial statements are not in agreement with the accounting records and returns; or
o certain disclosures of directors’ remuneration specified by law are not made; or
o we have not received all the information and explanations we require for our audit; or
o the directors were not entitled to prepare the financial statements in accordance with the small companies’ regime and take advantage of the small companies’ exemptions in preparing the directors’ report and from the requirement to prepare a strategic report.
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Non-company charity – England & Wales
We have nothing to report in respect of the following matters in relation to which the Charities (Accounts and Report) Regulations 2008 requires us to report to you if, in our opinion:
o The information given in the financial statements is inconsistent in any material respect with the trustees’ report; or
o sufficient accounting records have not been kept; or
o the financial statements are not in agreement with the accounting records and returns; or
o we have not received all the information and explanations we require for our audit.
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Company charities Responsibilities of directors trustees
As explained more fully in the directors’ trustees’ responsibilities statement [set out on page ...], the trustees (who are also the directors of the charitable company for purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors trustees are responsible for assessing the [charity’s] [charitable company’s] ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors trustees either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
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Telford Financial Training Ltd
Requiring statutory audit Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: [website link]. This description forms part of our auditor’s report.
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Telford Financial Training Ltd
If eligible for independent examination Auditor’s responsibilities for the audit of the financial statements
We have been appointed as auditor under section 145 of the Charities Act 2011 and report in accordance with the Act and relevant regulations made or having effect thereunder.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: [website link]. This description forms part of our auditor’s report.
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Telford Financial Training Ltd
Bannerman paragraph o Use of our report
o This report is made solely to the [charitable company’s members] [charity’s trustees], as a body, in accordance with [Chapter 3 of Part 16 of the Companies Act 2006] [charity’s trustees as a body in accordance with Part 4 of the Charities (Accounts and Report Regulations) 2008]. Our audit work has been undertaken so that we might state to the [charitable company’s members] [charity’s trustees] those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than [the charitable company and the charitable company’s members] [the charity and the charity’s trustees] as a body, for our audit work, for this report, or for the opinions we have formed
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Telford Financial Training Ltd
Illustration 1
o Your charity client has refused to include
certain information required by charity law
and the SORP. What are the implications
for your report in the following alternative
scenarios:
a. The charity is a limited company?
b. The charity is unincorporated?
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Telford Financial Training Ltd
Part (a)
o Required to report under CA 2006
o Need to qualify
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Telford Financial Training Ltd
o If, based on the work we have performed,
we conclude that there is a material
misstatement of the other information, we
are required to report that fact.
o We have nothing to report in this regard
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Telford Financial Training Ltd
o If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
o As described in the Basis for qualified opinion on other matters prescribed by the Companies Act 2006 section of our report we have concluded that a material misstatement of the other information exists.
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Telford Financial Training Ltd
o Basis for Qualified Opinion on other matters prescribed by the Companies Act 2006
o Based on the work undertaken in the course of the audit, the information given in the trustees’ report including the strategic report has not been prepared in accordance with applicable legal requirements because of the omission of the following information [provide details].
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Telford Financial Training Ltd
Qualified opinion on other matters prescribed by the Companies Act 2006
Except for the matter described in the Basis for Qualified Opinion on other matters prescribed by the Companies Act 2006 section of our report, in our opinion, based on the work undertaken in the course of the audit:
o the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
o the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
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Telford Financial Training Ltd
Matters on which we are required to report by exception
Except for the material misstatement described in the Basis for qualified opinion on other matters prescribed by the Companies Act 2006 section of our report, in the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
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Telford Financial Training Ltd
Part (b) – No opinion required
If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have concluded that a material misstatement of the other information exists because the trustees’ report including the strategic report has not been prepared in accordance with applicable legal requirements because of the omission of the following information [provide details].
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Telford Financial Training Ltd
Directions and guidance for
independent examiners
Chapter 9
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Telford Financial Training Ltd
Updated framework for examination
o Updated for:
o Audit exemption limits
o Change in reportable incidents
o Revised directions
o New form of report
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Telford Financial Training Ltd
Revisions to directions
o New direction 2 – Check for any conflict of interest that prevents you as an examiner form carrying out your independent examination;
o New direction 7 – If during the independent examination, the examiner identifies a conflict of interest was present and / or related party transactions took place, the examiner must check if these were properly authorised and were fully disclosed;
o New direction 9 – Check that the charity’s financial sustainability and the trustees’ assessment of going concern.
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Telford Financial Training Ltd
Effective date
o Reports signed and dated on or after 1
December 2017
o Encouraged to apply immediately
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Telford Financial Training Ltd
Non-company charity
Independent examiner’s report to the trustees of ABZ Trust
I report on the accounts of the company for the year ended 30 November 2017.
Responsibilities and basis of report
As the charity’s trustees of the Trust you are responsible for the preparation of the accounts in accordance with the requirements of the Charities Act 2011 (“the Act.)”
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Telford Financial Training Ltd
Independent examiner’s statement
I have completed my examination. I confirm that no material matters have come to my attention in connection with the examination giving me cause to believe that in any material respect:
1. accounting records were not kept in respect of the Trust as required by section 130 of the Act; or
2. that the accounts do not accord with those records; or
3. that the accounts do not comply with the applicable requirements concerning the form and content of accounts set out in the Charities (Accounts and Reports) Regulations 2008 other than any requirement that the accounts give a ‘true and fair view’ which is not a matter considered as part of an independent examination
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Telford Financial Training Ltd
o I have no concerns and have come across
no other matters in connection with the
examination to which attention should be
drawn in this report in order to enable a
proper understanding of the accounts to be
reached.
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Telford Financial Training Ltd
o Signed:
o Name:
o Relevant professional qualification (if any):
o Address:
o Date
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Telford Financial Training Ltd
Limited company
Independent examiner’s report to the
trustees of WXY Charitable company
(‘the Company)
I report on the charity trustees on my
examination of the accounts of the Company
for the year ended 30 November 2017.
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Telford Financial Training Ltd
Limited company Responsibilities and basis of report
As the charity’s trustees of the Company (and also as directors for the purposes of company law) you are responsible for the preparation of the accounts in accordance with the requirements of the Companies Act 2006 (‘the 2006 Act’).
Having satisfied myself that the accounts of the Company are not required to be audited under Part 16 of the 2006 Act and are eligible for independent examination, I report in respect of my examination of your charity’s accounts as carried out under section 145 of the Charities Act 2011 (‘the 2011 Act’). In carrying out my examination I have followed the Directions given by the Charity Commission under section 145(5)(b) of the 2011 Act.
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Telford Financial Training Ltd
Independent examiner’s statement
Since the Company’s gross income
exceeded £250,000 your examiner must be
a member of a body listed in section 145 of
the 2011 Act. I confirm that I am qualified to
undertake the examination because I am a
member of [named body e.g. ICAEW] which
is one of the listed bodies.
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Telford Financial Training Ltd
I have completed my examination. I confirm that no material matters have come to my attention in connection with the examination giving me cause to believe that in any material respect:
1. accounting records were not kept in respect of the Trust as required by section 386 of the 2006 Act; or
2. that the accounts do not accord with those records; or
3. that the accounts do not comply with section 396 of the 2006 Act other than any requirement that the accounts give a ‘true and fair view’ which is not a matter considered as part of an independent examination; or
4. the accounts have not been prepared in accordance with the methods and principles of the Statement of Recommended Practice for accounting and reporting by charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102)
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Telford Financial Training Ltd
o I have no concerns and have come across
no other matters in connection with the
examination to which attention should be
drawn in this report in order to enable a
proper understanding of the accounts to be
reached.
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Telford Financial Training Ltd
o Signed:
o Name:
o Relevant professional qualification (if any):
o Address:
o Date
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Telford Financial Training Ltd
Illustration 2 o You are the independent examiner of EFG CIO which is preparing
receipts and payments accounts. You have identified a lapse in the keeping of accounting records recording of restricted income. At the end of one church service a special appeal was held for a mission to Samarkand, but the money was banked together with the routine collections for that month and no separate record kept of the amount received for the specific purpose of the mission to Samarkand.
o You raised the matter with the trustees who pointed out that the deposits for that service was noted £1,978 against an average weekly banking of £1,275. They also confirmed that this was a one-off lapse in following the established protocol that ensures that specific appeals are counted and deposited separately. They reminded all who are involved in collecting and counting the collections at services of the correct procedures.
o The accounts did show the expenditure on the mission to Samarkand was separately identified and amounted to £2,837.
o What are the implications for your report?
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Telford Financial Training Ltd
Illustration 3 o You are the independent examiner of the DEF Trust and have
identified that the receipts and payments accounts prepared for the Trust show cash received in the year of £36,873, but that no records have been kept to match the record of the donations received to the deposits made and cash balances were retained and not deposited at the Trust’s bank. The only written record retained is a letter advising a grant award of £10,000. The majority of the expenditure was made in cash from retained unbanked cash or via cash withdrawals using a charity debit card, but few receipts were kept. Aside from invoices for utilities and rent and play equipment, there are no records of volunteer or other expenses. Total cash spent amounted to £86,000 with receipts for only £41,732 leaving £44,268 of payments without any supporting records.
o What is the impact on your independent examiner’s report?
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Telford Financial Training Ltd
Illustration 4
o You are the independent examiner of the
WXY charitable company preparing accounts
for the year ended 30 April 2018. The trustees
have refused to prepare a SoFA and have
prepared a profit and loss account. There are
restricted funds relating to a public collection,
but this is not reflected anywhere in the
financial statements.
o What are the implications for your examiner’s
report?
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Telford Financial Training Ltd
Whistle blowing
Chapter 10
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Telford Financial Training Ltd
The 4 issues
o Auditor / examiner duty to report matters of
material significance
o Auditor / examiner right to report relevant
matters
o Trustees’ responsibility to make reports
o Protection for whistle-blowers in the charity
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Telford Financial Training Ltd
Matters of material significance
o Some changes to material from significant
e.g. losses through fraud, internal control
weaknesses
o Some confirm reportable if come to light
during the audit
o Two new ones
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Telford Financial Training Ltd
Material significance
o “The term material significance requires
interpretation in the context of the specific
legislation applicable to the regulated
entity. A matter or group of matters is
normally of material significance to a
regulator’s function when, due either to its
nature or its potential financial impact, it is
likely of itself to require investigation by the
regulator.”
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Telford Financial Training Ltd
Dishonesty and fraud
o Matters suggesting dishonesty or fraud
involving a significant loss of, or a
material risk to, charitable funds or assets
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Telford Financial Training Ltd
Internal controls and governance
o Failure(s) of internal controls, including
failure(s) in charity governance, that
resulted in or could give rise to a
material loss or misappropriation of
charitable funds, or which leads to
material charitable funds being put at
major risk
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Telford Financial Training Ltd
Money laundering and criminal conduct
o Knowledge or suspicion that the charity or
charitable funds including the charity’s
bank accounts have been used for money
laundering or such funds are the proceeds
of serious organised crime or that the
charity is a conduit for criminal activity
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Telford Financial Training Ltd
Support of terrorism
o Matters leading to the knowledge or
suspicion that the charity, its trustees,
employees or assets, have been involved
in or used to support terrorism or
proscribed organisations in the UK or
outside the UK, with the exception of
matters related to a qualifying offence
as defined by Section 3(7) of the
Northern Ireland (Sentences) Act 1998
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Telford Financial Training Ltd
Risk to charity’s beneficiaries
o Evidence suggesting that in the way the
charity carries out its work relating to the
care and welfare of beneficiaries, the
charity’s beneficiaries have been or were
put at significant risk of abuse or
mistreatment
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Telford Financial Training Ltd
Breaches of law or the charity’s trusts
o Single or recurring breach(es) of either a
legislative requirement or of the charity’s
trusts leading to material charitable
funds being misapplied
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Telford Financial Training Ltd
Breach of an order or direction made by a
charity regulator
o Evidence suggesting a deliberate or
significant breach of an order or direction
made by a charity regulator under statutory
powers including suspending a charity
trustee, prohibiting a particular transaction
or activity or granting consent on particular
terms involving significant charitable
assets or liabilities
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Telford Financial Training Ltd
Withdrawn….
o Any notification or matter reported to the
trustees on resigning as independent
examiner or matter that the examiner is
aware of on resignation or ceasing to act
that falls within the categories of the
previously reportable matters, or for
examiners the notification on ceasing to
hold office or resigning from office, of those
matters reported to trustees.
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Telford Financial Training Ltd
Modified audit opinion or qualified
examiner’s report
o n making a modified audit opinion, emphasis of matter, material uncertainty related to going concern, or issuing of a qualified independent examiner’s report identifying matters of concern to which attention is drawn, notification of the nature of the modification / qualification / emphasis of matter or concern with supporting reasons including notification of the action taken, if any, by the trustees subsequent to the audit opinion, emphasis of matter or material uncertainty identified / examiner’s report.
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Telford Financial Training Ltd
Not pursued ….
o Evidence that, without reasonable cause,
trustees have not taken action on matters
identified by the auditor / examiner in their
scrutiny of accounts for a previous year
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Telford Financial Training Ltd
Conflicts of interest and related party
transactions
o Evidence that conflicts of interest have not
been managed by the trustees and / or
related party transactions have not been
fully disclosed in all the respects required
by the applicable SORP, or applicable
Regulations.
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Telford Financial Training Ltd
Right to report
o Updated guidance encouraging auditors
and examiners to use their statutory right
o Significant but not on previous list ….
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Telford Financial Training Ltd
Illustration 5
o An examiner identifies that money within a restricted fund has been spent on an activity that is not compatible with the restriction on the use of those funds. The amount was less than £1,000 and the balance on the restricted fund at the end of the reporting period was over £100,000 so it is not considered material to the accounts.
o What are the implications for the auditor / independent examiner?
o What difference would it make if the amount involved had been material?
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Telford Financial Training Ltd
Illustration 6
o A charity established to care for vulnerable adults and children is reliant on a single contract for 90% of its income in the reporting period and the trustees are uncertain whether they will be able to secure future funding at the current level when the contract is renewed the following year.
o What are the reporting implications for auditors / independent examiners?
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Telford Financial Training Ltd
Illustration 7
o Reverting to illustration 3 above, relating to
the qualified audit report arising from the
inadequate accounting records, what are
the reporting implications to the Charity
Commission?
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Telford Financial Training Ltd
Illustration 8
o Reverting to illustration 4 above, relating to
the failure to prepare a SoFA, what are the
implications for reporting to CC?
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Reporting and public benefit
Chapter 11
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Public benefit framework
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Telford Financial Training Ltd
Charity Accounts and Audit Update
Bill Telford BA FCA
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