Two samples of charity accounts were taken, covering successive years, from the register of charities in September 2014. 108 charities were reviewed for accounting years ending during the 12 months to 31 March 2012 and 107 charities were reviewed for accounting years ending during the 12 months to 31 March 2013.

All registered charities are required to publish a trustees’ annual report which sets out the activities that the charity has undertaken for the public benefit. Charities are also required to include a statement as to whether they have had due regard to the Charity Commission’s guidance on public benefit.

In its review, the Charity Commission found that only 27% of charities in 2011/12 and 35% in 2012/13 were meeting both of these requirements. The quality of reporting was highest among the largest charities (those with income in excess of £500,000). In its report the regulator confirmed that it will be taking a number of actions to make trustees aware of their reporting obligations.

The regulator also looked at the ‘the percentage of charity accounts monitored found to be of acceptable quality’, basing its assessment of ‘acceptable’ on how useful the set of accounts was considered to be to the users of those accounts, rather than on strict technical compliance with the Statement Of Recommended Practice (SORP). It considered 54% of charity accounts in 2011/12 and 68% in 2012/13 to be of ‘acceptable quality. As with the public benefit reporting review, the percentage of acceptable accounts was highest among the largest charities.

Click for:

• Press release (link to Charity Commission website)
• The Charity Commission’s report on public benefit reporting (link to Charity Commission website)
• The Charity Commission’s report on the quality of charity accounts (link to Charity Commission website)

The 2015 Regulations:

The IAAER and ICAS are seeking proposals developing theory and evidence to inform the International Auditing and Assurance Standards Board (IAASB) in its work to develop high-quality international standards for auditing, quality control, review, other assurance and related services, and to facilitate the convergence of international and national standards.

The IAASB is particularly interested in proposals addressing:

• the implications of trends and developments in financial and corporate reporting on auditing, other assurance and related services;
• professional judgment and professional scepticism; and
• implementation of its international standards, e.g. the new and revised standards on auditor reporting.

The press release and full call for research proposals can be downloaded from the ICAS website.

• Press release (link to FRC website)
• The FRC’s response letter (link to FRC website)
• Our news story on the ED Disclosure Initiative (Proposed amendments to IAS 7)

The FRC has identified the following priority areas for 2015/16 (taken from the Plan and Budget and Levies 2015/16):

Corporate Governance

The FRC will “focus on company culture and how to promote good practice; and on company succession planning”.  Specifically the FRC will:

• Continue an assessment of the quality of board succession planning and consider how to develop best practice.
• Review how effective boards establish company culture and practices, embedding good corporate behaviour.
• Following the 2014 changes to the UK Corporate Governance Code, seek evidence of the companies’ early experience of implementing risk management and viability reporting.
• Consider, in advance of any formal consultation, possible changes to the Code in 2016 as result of the CMA recommendations in relation to audits of FTSE 350 companies.

Investor stewardship  

The FRC highlights that it is “seeking an improvement in the quantity and quality of engagement; for asset managers to be more accountable to their clients, who should in turn generate the demand for stewardship; and for proxy advisors to be more accountable for the quality of their advice”.

To that end, the FRC will “support better engagement between boards and shareholders and ensure that Stewardship Code signatories deliver on the commitments”.  The FRC notes that there are some “encouraging signs of more engagement” between larger listed companies and their shareholders “but this is not the case across the listed sector or the signatories to the Stewardship Code as a whole”.  Specific areas of focus will be:

• Developing the evidence base for engagement practice and the benefits of effective engagement.
• Encouraging asset managers and owners to provide better accounts of their engagement policies and practices.
• Undertaking scrutiny of adherence to the Stewardship Code.
• Influencing the development of the new EU Shareholder Rights Directive.   

Corporate Reporting

The FRC highlights that it has built on its ‘cutting clutter agenda’ through promoting clear and concise reporting including publishing the guidance on the Strategic Report and the Corporate Reporting Review Annual Report and a report by the Financial Reporting Lab.  The aim of the FRC in this area will be to “encourage all those involved in the financial reporting process to focus on communication, the placement of information and materiality”.  During 2015/16 the FRC will:

• Evaluate the impact of the Guidance on the Strategic Report, work with BIS on the UK implementation of the EU Directive on Non-financial Reporting and continue to influence other regulators to support clearer and more concise reporting that is relevant to investors.
• Issue new reporting requirements for small and micro companies in response to the implementation of the EU Accounting Directive; and consider consequential amendments to FRS 102.
• Continue to influence the International Accounting Standard Board (IASB) agenda, particularly its Conceptual Framework and its work on disclosures, including specific research to influence developments in cashflow reporting.
• Publish the latest findings from the Financial Reporting Lab project on Corporate Reporting in a Digital World and publish the outcomes of the Lab’s work on disclosure of dividend policy and capacity.

Additionally, the plan and budget indicates that the FRC will continue to undertaking its annual programme of reviews of corporate reports.  The FRC highlight that its priority sectors will be “insurance, food, drink and consumer goods manufacturers and retailers, companies servicing the extractive industries and business services”.  During the reviews the FRC will pay particular attention to “revenue recognition, the reporting of complex supplier arrangements, business combinations and the implementation of new accounting standards”. 

The FRC will also continue its project aimed at improving the quality of reporting of smaller listed and AIM companies.

Audit

The FRC will “support BIS in implementing the amended EU Audit Directive and Regulation; and continue the programme of work to promote audit that is of a consistently high standard and meets investor needs”.  Specifically the FRC will:

• Follow-up the thematic review of the quality of auditing of banks and building societies; and undertake thematic studies on audit quality processes covering quality control monitoring procedures and the Engagement Quality Control Review (EQCR) together with audit sampling.
• Assess how audit committees are applying, on a voluntary basis, the CMA recommendations on audit quality review (AQR) transparency.
• Continue to work with BIS to ensure that the EU Audit Regulation and Directive is implemented to ensure an effective, appropriate and proportionate regulatory regime for audit. This will include considering the impact of any changes on the structure of audit regulation and related FRC powers and on the FRC’s ethical and auditing standards.
• Contribute to the work of the International Auditing and Assurance Standards Board, the International Forum of Independent Audit Regulators and other EU and international groups.
• Contribute to the development of an updated Audit Firm Governance Code. 

Additionally the FRC will “monitor and report on the quality of around 140 individual engagements” focusing on the same areas as those priority sectors under the ‘corporate reporting’ objective and also the quality of first year audits.

Conduct

The FRC will “consider the overall effectiveness of its work to review the quality of corporate reporting and auditing; and continue to enhance the pace and effectiveness of our independent disciplinary arrangements”.  The FRC has indicated that it intends to “undertake a project to consider the effectiveness of our corporate reporting and audit quality review activities”.

The full Plan and Budget and Levies 2015/16 contains effectiveness indicators that the FRC will use to assess progress against these objectives and additional areas of focus to the ones identified above.  The FRC also identify actions it will take to enhance actuarial regulation and standards and explain how these key activities for 2015/16 will be funded.

The FRC also indicates that during 2015/16 it will be developing its next three year strategy for 2016-2019 and will consult on areas that it should focus on in due course.

The full details of the plan and budget and press release can be obtained from the FRC website.  Our previous story on the draft plan and budget sets out further information on the background behind these areas of focus.

Following the introduction of the Local Audit and Accountability Act 2014 (“the Act”) in January 2014, the Comptroller and Auditor General (CAG, the head of the NAO) will take on the role of preparing and maintaining the Code from the Audit Commission, which is to be abolished on 31 March 2015.

The Code sets out what local auditors of relevant local public bodies (as defined in Schedule 2 of the Act) are required to do to fulfil their statutory responsibilities under the Act. 

The CAG has put together a single unified code covering the audit of all different types of local public body.  The Code is a principles rather than a rules based framework.

In the preface to the Code the NAO comments:

We have taken a principles-based, rather than a rules-based, approach to developing the Code. This is in line with predecessor codes and has allowed us to prepare a concise, high-level code applicable to the audit of all local public bodies within the local audit model established by the Act, providing a clear framework for the auditor to meet their statutory duties. A principles-based approach also helps to ensure that the Code does not quickly become out of date as the regulatory environment evolves.

In addition to Code, the NAO has also published a series of Auditor Guidance Notes to auditors “to support auditors in their work and facilitate consistency of approach between auditors of the same types of entity”.  The Act requires auditors to have regard to such guidance.

The NAO have confirmed that existing codes and guidance prepared by the Audit Commission for local government and local NHS bodies and Monitor’s Audit Code for NHS foundation trusts will continue to apply for audits relating to 2014-15.

The NAO press release, Code of Audit Practice and supporting Auditor Guidance Notes are available on the NAO website.