For many charity trustees, the phrase “external scrutiny” can sound daunting, often bringing to mind high-stakes audits and complex regulatory hurdles. However, for most small-to-mid-sized charities, the process is not a full-scale audit but rather an independent examination (IE). This process is a vital part of maintaining public trust and confidence by providing an independent check on the charity’s accounts.
This article explains the essential steps involved in an independent examination and provides practical advice on how your charity can prepare to ensure the process runs smoothly.
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What is an Independent Examination?
An independent examination is a form of “external scrutiny” that is less rigorous than a statutory audit. While an audit provides “reasonable assurance” that accounts are free from material misstatement and offer a “true and fair view,” an independent examination provides what is known as “negative assurance”. This means the examiner is only required to confirm whether any material matters of concern have come to their attention.
The Thresholds for Scrutiny
Currently, in England and Wales, all charities with a gross income of more than £25,000 must have some form of external scrutiny. Charities can generally opt for an independent examination unless their gross income exceeds £1 million, or if their income exceeds £250,000 and they have total assets worth more than £3.26 million.
According to the sources, significant changes are expected in October 2026, where the audit threshold will rise to £1.5 million and the independent examination requirement will start at £40,000. It is also important to note that if a charity’s income exceeds £250,000 (rising to £500,000 in late 2026), the examiner must be a qualified member of a listed professional body.
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The 13 Directions: How the Examination is Conducted
The Charity Commission sets out mandatory Directions that every independent examiner must follow. Understanding these steps helps trustees understand what the examiner is looking for:
1. Eligibility Check: The examiner must first verify that the charity is legally permitted to have an independent examination rather than a full audit.
2. Conflict of Interest: The examiner must be independent, meaning they cannot be a trustee, an employee, or have close personal relationships with those in management.
3. Recording the Process: The examiner must keep a record of the work undertaken and the conclusions reached.
4. Planning: A successful examination requires careful planning, including a review of the charity’s constitution and management structure.
5. Accounting Records Standard: The examiner checks if the records are kept to the required legal standard—meaning they are up to date and provide basic information on the charity’s financial position.
6. Consistency with Records: The accounts are compared directly to the underlying accounting records to ensure they match.
7. Related Party Transactions: If the charity prepares accruals accounts, the examiner must check that any transactions with “related parties” (like trustees or their families) are properly disclosed.
8. Reasonableness of Estimates: The examiner reviews the significant estimates and accounting policies used, particularly how different types of funds (restricted vs. unrestricted) are handled.
9. Financial Circumstances and Going Concern: The examiner checks if the trustees have assessed the charity’s ability to pay its bills as they fall due (its status as a “going concern”).
10. Form and Content: The examiner ensures the accounts comply with the legal requirements and the Charities SORP (Statement of Recommended Practice) where applicable.
11. Analytical Review: This involves comparing the current year’s figures with previous years to identify any unusual items or unexpected fluctuations that require further explanation.
12. Trustees’ Annual Report Review: The examiner compares the narrative in the Trustees’ Annual Report with the figures in the accounts to ensure there are no major inconsistencies.
13. The Final Report: The process concludes with a written report to the trustees, stating whether any matters of concern were found.
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How Charities Can Prepare: 5 Key Lessons
Drawing on the sources, there are several “real-life lessons” trustees can follow to make the process quick, easy, and stress-free.
1. Agree on a Timetable Early
One of the most common pitfalls is not setting a clear schedule. Trustees must file accounts and reports with the Charity Commission within 10 months of the financial year-end. If the charity is also a company, it must file with Companies House within 9 months.
Tip: Agree on key milestones with your examiner well in advance, including when draft accounts will be provided, when the review will start, and when the final sign-off will occur.
2. Prepare the Trustees’ Report in Advance
The Trustees’ Annual Report is a legal requirement that tells the story of your charity’s work, but it is often left to the last minute. Because the examiner must review this report as part of their work, delays here can stall the entire examination and lead to late filing.
Tip: Start drafting the narrative report alongside your year-end figures. Don’t be afraid to ask your accountant for help with the required format and content.
3. Keep Books “Little and Often”
If accounting records are not up to date when the examination begins, it creates extra work, higher costs, and unnecessary stress. The sources suggest a mantra of “Little and Often”—updating records weekly or even daily so that problems can be resolved while they are fresh in everyone’s minds.
Tip: Ensure your records contain details of all money received and spent, as well as assets and liabilities. Be ready to provide bank statements, invoices, and minutes of trustee meetings.
4. Ensure Key Staff and Trustees Are Available
Examiners will inevitably have questions about unusual items or missing information. The process often stalls because a key staff member or trustee is on holiday or otherwise unavailable to provide answers.
Tip: Before finalizing the timetable, check the diaries of key personnel to ensure they are available to assist the examiner during the scheduled review period.
5. Assign Responsibility for Filing
The job is not finished when the examiner signs the report. Someone must take the final step of uploading the documents to the regulator’s portal.
Tip: Assign the specific responsibility of filing the accounts to one person (such as the Treasurer) and include this as a clear action point in your examination timetable.
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Selecting the Right Independent Examiner
Trustees are responsible for appointing the examiner, and they must “reasonably believe” the person has the requisite ability and experience.
• Independence: The examiner must be impartial. They should not be involved in the charity’s financial decision-making or day-to-day administration. For example, the person who acts as the charity’s bookkeeper cannot also be its examiner.
• Ability and Qualification: For smaller charities (income under £250,000), the examiner does not necessarily need to be a qualified accountant, but they must have the numeracy skills and financial awareness to conduct a competent review. However, once income exceeds £250,000, they must be a member of a listed professional body, such as the ICAEW or ACCA.
• Experience: Charity accounting is unique. You should ask a potential examiner if they are familiar with the Charities SORP and relevant Commission guidance.
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Conclusion
An independent examination should not be viewed merely as a compliance exercise but as a worthwhile health check that helps safeguard your charity’s reputation and resources. By planning ahead, keeping meticulous records, and maintaining open communication with your examiner, you can ensure a smooth process that fulfills your legal duties and demonstrates your commitment to transparency.
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Analogy for Understanding: Think of an audit like a detailed mechanical inspection where every bolt and wire in a car is tested to guarantee it’s in perfect working order. In contrast, an independent examination is more like an annual MOT test; the examiner doesn’t take the whole engine apart, but they perform a series of standard checks to ensure there are no obvious “red flags” or safety issues that would make the vehicle unfit for the road.
