Clarity ISAs: guidance on small charity audit documentation
To reflect the new documentation requirements introduced in the clarified ISAs (UK and Ireland) for audits of financial statements for periods ending on or after 15 December 2010, the Audit and Assurance Faculty has developed practical examples of the audit documentation for small charities based on APB Practice Note (PN) 26 Guidance on smaller entity audit documentation.
Examples in the appendix to PN26 are based on a fictitious for profit company with turnover in excess of £3 million. Statutory audit thresholds for a charitable company are either income exceeding £500,000 or gross assets in excess of £3.26 million. For an unincorporated charity the respective limits are income exceeding £,500,000 or gross assets exceeding £3.26 million together with income in excess of £250,000. There are however many charities that are below these thresholds that still require an audit. This can be for many reasons such as being a condition of grant funding; part of a governance strategy adopted by the trustees or under the terms of their governing document to name but a few.
Hence the aim of the Faculty guidance is to help members by supplying charity-specific examples. Where documentation requirements for a small charity are the same as they would be for a small entity in any sector, no such guidance is provided as auditors can refer to PN26.
The examples provided by the Faculty are designed to act like model answers to an exam question to demonstrate best practice. As a result, examples may be more detailed and extensive than would be likely to be found in practice. The key aim of the examples are to ensure that the audit is planned and performed in accordance with ISAs (UK and Ireland) and relevant regulatory requirements as well as make sure that the audit documentation offers an adequate and appropriate record of the basis for the auditor’s report.
The examples concentrate on documentation of elements of audit planning such as understanding the entity; internal control and risk assessment, and as such do not cover every stage of the audit process for a charity. These are areas which had been highlighted in feedback from the introduction of ISAs in 2004 for which further guidance on documentation would be helpful. New documentation requirements such as materiality and examples of going concern considerations (due to smaller charities often relying heavily on voluntary donations) are examples of the material provided in the examples.
ICAEW: Comments and suggestions will be welcomed and should be sent to Anne Davis, Head of Charity and Voluntary Sector.
Date: 17th February, 2011
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