Auditor's report guidance for ICAS firms acting as auditors of Scottish charities
Auditor’s report guidance for ICAS firms acting as auditors of Scottish charities
The Guide is relevant for the audit of financial statements with reporting periods commencing after 1 February 2020 with filing after 31 December 2020.
It is intended to assist ICAS registered audit firms prepare auditor’s reports for Scottish charities in accordance with the following standards and guidance issued by the UK Financial Reporting Council (FRC):
- International Standard on Auditing ISA (UK) 570: Going concern (revised September 2019).
- ISA (UK) 700: Forming an opinion and reporting on financial statements (revised November 2019) (updated January 2020).
- Bulletin: Illustrative auditor’s reports on United Kingdom private sector financial statements for periods commencing after 1 February 2020 with filing after 31 December 2020 (August 2021).
FRC standards and guidance on audit and assurance matters are available here.
The Guide is only relevant for charitable companies and non-company charities preparing their financial statements in accordance with the Charities SORP (FRS 102) and FRS 102: The Financial Reporting Standard Applicable in the UK and Republic of Ireland. It is not relevant to auditor’s reports on financial statements prepared on a receipts and payments basis.
The previous edition of this Guide included illustrative reports for a small charitable company and a non-company charity. This edition of the Guide has been expanded to include three additional illustrative reports.
The following five illustrative auditor’s reports are contained within the Guide, along with accompanying commentary:
- An unmodified auditor’s report for a small standalone charitable company registered in Scotland.
- An unmodified auditor’s report for a standalone non-company charity registered in Scotland.
- An unmodified auditor’s report for a non-company charity registered in Scotland preparing group and parent charity financial statements.
- An auditor’s report for a non-company charity registered in Scotland with a material uncertainty related to going concern.
- Unmodified auditor’s report for a non-company charity registered in England & Wales and in Scotland.
Auditors are reminded that OSCR considers that they have a statutory duty to report under Section 46 of the Charities and Trustee Investment (Scotland) Act 2005 to the regulator if they issue:
- A non-standard ‘modified’ auditor’s opinion.
- An auditor’s report with a material uncertainty related to going concern.
- An auditor’s report with an emphasis of matter paragraph.
Further guidance on the statutory duty to report is set out jointly by the UK charity regulators in Matters of material significance reportable to UK charity regulators.
Key changes to the illustrative reports arising from revised ISAs (UK) and FRC guidance
The revisions to ISA (UK) 570 and ISA (UK) 700 brought significant changes to the wording of auditor’s reports for periods commencing on or after 15 December 2019, relating to going concern and irregularities, including fraud. However, the Guide is relevant to financial statements for periods commencing after 1 February 2020 with filing after 31 December 2020 to align with the latest edition of the FRC’s Illustrative auditor’s reports bulletin.
ISA (UK) 570 has been revised to require the auditor to make a positive statement in their auditor’s report about the trustees’ use of the going concern basis of accounting to prepare the financial statements.
ISA (UK) 700 has been revised to require the auditor to explain the extent to which the audit was considered capable of detecting irregularities, including fraud within their auditor’s report. In the FRC’s Illustrative auditor’s report bulletin, this requirement is met in the section of the auditor’s report on the ‘Auditor’s responsibilities for the audit of the financial statements’. The illustrative examples in this Guide follow the same approach.
The illustrative auditor’s reports are accompanied by commentary to assist the auditors of Scottish charities to prepare auditor’s reports tailored to the circumstances of their charity clients.
The guidance is not intended to be comprehensive and does not deal with every circumstance. It is therefore not a substitute for the auditor’s own judgement or referring directly to standards and guidance issued by the FRC or to the relevant legislation and regulations.
The accompanying commentary provides further guidance on
- The accounting and reporting framework for Scottish charities.
- The legislative framework for the audit of Scottish charitable companies.
- Elements of the auditor’s report.
- The auditor’s responsibilities for the audit of financial statements
The auditor’s responsibilities for the audit of financial statements are set out in the relevant legislation and in ISAs (UK). A description of these responsibilities is included within the auditor’s report and there are three options for making this disclosure.
In the UK, the auditor is permitted to cross-refer to the applicable version of a “Description of the auditor's responsibilities for the audit of the financial statements” that is maintained on the website of an appropriate authority and this is the approach followed in the illustrative reports included in this Guide.
The appropriate authority is the FRC.
The auditor should not extend their audit work or broaden the matters on which they report in their auditor’s report beyond the requirements of the relevant legislation and ISAs (UK) either at the request of their audit client or a third party, for example, a grant funder or, on the rare occasion where this is relevant, a non-charitable parent.
Please contact the Accounting and Auditing Team via the ICAS Technical Helpdesk, if you are asked to undertake additional audit work or prepare an auditor’s report which goes beyond the auditor’s responsibilities for the audit of the financial statements.
Location of the Bannerman wording
Reference is made in the accompanying commentary to technical guidance issued by the ICAEW on the location, in the auditor’s report, of the Bannerman wording set out in Technical Release (01/03 AAF (Revised): The audit report and auditors’ duty of care to third parties (18 May 2018).
In the interests of consistency, the illustrative auditor’s report examples in the guidance follow 01/03 AAF.