5. How to select and appoint an independent examiner

The proposed independent examiner must be independent of the charity.  

Independence means that the examiner must not be influenced or be seen to be influenced, by their relationship with the charity and its trustees.

Independence is not possible if you are:

• one of the charity’s trustees
• anyone else involved in the management, control or administration of the charity, which usually means being a senior employee of the charity.  However, there are also occasions where a volunteer (other than a trustee) also has a key role and so would not be independent. 

It would not be appropriate to ask your treasurer or book-keeper who keep the day to day records from which the formal accounts are prepared to undertake the examination. This is because, if they carried out the independent examination, they would end up checking their own work.

Independence can also be compromised by being ‘connected’ to the charity. Such a connection can arise because of:

• a family relationship.  For example the parent or child of a trustee or senior employee
• a financial or commercial relationship.  For example, someone who represents a body that funds the charity or contracts with the charity to provide services. 

If you are unsure whether your proposed examiner is independent you should ask them to clarify in writing why they consider they meet the independence criteria. We have a Guide for Independent Examiners to help them too.

The type of accounts prepared will set out initial criteria for the independent examiner.

• Receipts and payments accounts: the examiner should be someone the trustees consider is able to carry out an independent examination in line with the relevant requirements.  The trustees should satisfy themselves that the person appointed has the necessary knowledge and skills to be able to carry out the engagement, which may depend on the complexity of the charity’s operations and accounts.
  
  
  
• Fully accrued accounts: the examiner must be someone who is professionally qualified to undertake the role.   

Charities may feel that they are unable to find someone willing to take on the role of independent examiner, particularly if they are seeking the service for free. However, it is important for charity trustees, and the general public, to understand the value of the work of the independent examiner and to recognise that this may have a legitimate cost implication for the charity. The use of charitable funds for payment of reasonable independent examination fees is acceptable. It is necessary to make sure that the charity complies with the relevant legal requirements and is transparent and accountable to the public. Such costs would be categorised as ‘governance costs’ within the charity’s accounts. 

Many charities also use their independent examiner to put their accounts in the statutory format in addition to carrying out the independent examination. However, charity trustees using OSCR’s Receipts and Payments Workpack may be able to prepare the accounts themselves, leaving the independent examiner to carry out only the external scrutiny.

This could help to reduce costs, particularly for smaller charities.

As part of the selection process, the charity trustees may wish to use the following questions as a guide to assessing whether the person seeking appointment has the appropriate skills and abilities to carry out the relevant duties:

• How many Scottish charities do you act for?
• Are you familiar with OSCR’s Receipts and Payments Workpack? (receipts and payments accounts).
• Are you familiar with the Charities SORP? (fully accrued accounts).
• Which professional body are you registered with and what level of membership do you hold? (qualified independent examiner).
• Have you checked with your professional body that you are eligible to carry out the examination? (qualified independent examiner).

Receipts and payments accounts

Non-company charities with a gross income of less than £250,000 are eligible to prepare Receipts and Payments accounts unless their governing document or a third party requires fully accrued accounts to be prepared.

Many older governing documents will include references to ‘income and expenditure account and balance sheet’ which would require fully accrued accounts to be prepared.  If this is the case, charity trustees may wish to amend their governing document to allow for the preparation of Receipts and Payments accounts.

Receipts and payments accounts are a simple form of accounting that broadly consist of a summary of all monies received and paid by the charity during its financial year, along with a statement of balances at the financial year end.

Under the 2006 Regulations, receipts and payments accounts must consist of:

• a Trustees’ Annual Report
• a Statement of Receipts and Payments
• a Statement of Balances as at the last day of the financial year
• notes to the accounts
• a report from an independent examiner or auditor.

The independent examination of receipts and payments accounts must be carried out by someone independent of the management and administration of the charity. The charity trustees must believe that the individual has the required skills and experience to carry out a competent examination of the accounts.

In deciding who might have the required skills, the charity trustees should take into consideration the degree of complexity of the accounts. The more complex the accounts are, the higher the level of experience and knowledge likely to be required by the independent examiner.

The types of people whom charity trustees could consider as having the required skills and experience might include:

• full or associate members of the Association of Charity Independent Examiners
• qualified accountants currently in employment
• retired accountants
• other people familiar with financial matters who can demonstrate familiarity with the current reporting requirements for Scottish charities.

Fully accrued accounts

For charities producing fully accrued accounts, the independent examination must be carried out by an individual who is appropriately qualified in matters of accounting and financial administration on the basis that the accounts to be examined are more complex.

The 2006 Regulations specify that the independent examiner must be one of the following individuals:

Either:

a member of one of the following professional bodies:

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

Or  

• a full member of The Association of Charity Independent Examiners

Or

• the Auditor General for Scotland

Or

• a person appointed by the Accounts Commission for Scotland.

Charity trustees should remember it is their responsibility to make sure the accounts are prepared and externally scrutinised in line with the statutory requirements.

They should satisfy themselves that they understand these requirements and are aware of the skills that the examiner will need to carry out their duties. This may relate to the complexity of the charity’s accounts or its operations.

Charity trustees are encouraged, as a matter of best practice, to consider formalising their relationship with the independent examiner by setting out the services that are expected via a letter of appointment. This will enable both parties to understand and appreciate the extent of the work and duties involved in the independent examination process.

It is recognised that where a person provides independent examination services to a charity for no charge, it is more likely that a simple letter of appointment or email exchange will be used. For smaller charities, where the examiner is an unpaid volunteer for example, an email could be adequate if the charity trustees and independent examiner feel that this is appropriate.