Auditor's report guidance for ICAS firms acting as auditors of Scottish charities
The ICAS Charities Panel has published new guidance on auditor’s reports for ICAS firms acting as auditors of Scottish charities. The guidance is relevant for the audit of financial statements with reporting periods commencing on, or after, 17 June 2016.
Please note that this guidance ceases to apply to the audit of financial statements for periods commencing on or after 15 December 2019. For periods commencing on or after 15 December 2019, charity auditors must prepare their auditor’s reports in accordance with a revised version of ISA (UK) 700 on forming an opinion and reporting on financial statements. The latest edition was revised in November 2019 and updated in January 2020. All ISAs UK are available here on the FRC website.
The Guide is intended to assist ICAS registered audit firms prepare auditor’s reports for Scottish charities in accordance with International Standard on Auditing (ISA) (UK) 700: Forming an Opinion and Reporting on Financial Statements (revised June 2016) which has led to significant changes in the structure and wording of auditor’s reports.
The illustrative auditor’s reports included within the Guide are based on illustrative reports published by the Financial Reporting Council (FRC) in its Bulletin Compendium of Illustrative Auditor’s Reports on United Kingdom Private Sector Financial Statements for periods commencing on, or after, 17 June 2016 (October 2016).
In preparing an auditor’s report for a Scottish charity, reference should be made to the requirements of ISA (UK) 700 and of ISA (UK) 720: The Auditor’s Responsibilities Relating to Other Information (revised June 2016) and the charity specific guidance in Practice Note 11 (Revised): The Audit of Charities in the United Kingdom’ (November 2017) on ISAs (UK) 700 and 720.
The Guide is only relevant for charitable companies and non-company charities preparing their accounts 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.
Illustrative reports
Two 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.
The Scottish small charitable company illustration is applicable to small companies preparing their financial statements and having these audited under the Companies Act 2006, the Charities and Trustee Investment (Scotland) 2005 and the Charity Accounts (Scotland) Regulations 2006 (as amended).
- An unmodified auditor’s report for a standalone non-company charity registered in Scotland.
The Scottish non-company charity illustration is applicable to charitable trusts, unincorporated associations and Scottish charitable incorporated organisations (SCIOs) preparing their financial statements and having these audited solely under the Charities and Trustee Investment (Scotland) 2005 and the Charity Accounts (Scotland) Regulations 2006 (as amended).
Accompanying commentary
The illustrative auditor’s reports are accompanied by commentary to assist the auditors of a Scottish charities to prepare auditor’s reports tailored to the circumstances of their clients.
The Guide 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 to standards and guidance issued by 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 examples included in the Guide.
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 ICAS Policy Leadership Team, 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 Guide follow 01/03 AAF.