Auditors of UK charities have a duty to report any matters of material significance that they identify in the course of their work to their respective charity regulator as soon as they become aware of it. This duty to report is included within the revised Practice Note 11: The audit of charities in the United Kingdom, issued by the Financial Reporting Council in November 2017.

With effect from 1 May 2017, the list of reportable matters to the Charities Commission includes where an auditor intends to give a modified audit opinion and/or an audit opinion that includes paragraphs about an emphasis of matter or material uncertainty regarding going concern.

The review by the charity commission focussed on the period from 1 May to 31 October 2017. During this period, 114 charities gave audit opinions containing information that auditors were required to report to the Charity Commission as a matter of material significance.

Findings from the review include:

• Of the 114 audit reports that should have been reported to the Charity Commission as a matter of material significance, only 28 reports were given.
• Of the 28 reports received, only four were reported to the Charity Commission in a timely manner.
• Only 16 of the 114 charities filed their audited accounts promptly (measured as being no later than one day after the audit report was signed). Seven charities waited more than 100 days to file their accounts.

The Charities Commission indicates that:  

We are keen to work with the accountancy profession to raise standards of accountability and transparency within the charity sector. Auditor reporting on all matters of material significance has a key part to play in this. Therefore, we are writing to all of the firms or practitioners that did not file a report, reminding them of their responsibility to report a matter of material significance to us and asking them to explain why they have not done so.

The Charities Commission review reminds trustees of the list of matters of material significance that they need to be aware of and the duty placed upon an auditor to report these to the regulator. The report also highlights the need for Trustees to consider whether a serious incident report is required where an auditor has reported a matter of material significance.

The FRC has indicated that it, along with the audit professional bodies, will work with the charities regulators to promote and enforce these reporting requirements.

The press release and full report are available on the Charity Commission website.