FRC to revise charity audit practice note PN11

The Financial Reporting Council (FRC) is planning significant revisions to Practice Note 11: The audit of charities in the United Kingdom (PN 11), including a renewed emphasis on reporting matters of material significance, to reflect changes in the regulatory landscape and increased public interest and concern over governance in the sector

PN 11 was last updated in 2012. The revisions will take into account the implementation of FRS 102 and a new Charities SORP, and the implementation of revised ISAs (UK) in 2016.

The FRC notes that charities have been the subject of extensive press, public and Parliamentary interest of late, and says the PN will seek to incorporate lessons learned, particularly with respect to going concern and the auditor’s responsibility to report to charity regulators.

The legislative and regulatory framework section has been updated to reflect changes across the different jurisdictions in the UK. In addition, appendix 1 (now appendix 2), on charity accounting and audit regulations in the UK, has also been amended and updated to incorporate the material in appendix 6, covering the legislative background to auditor’s reports on charities’ financial statements.

There is now a separate section in PN 11 covering content previously included in ISA (UK) 250 section B and appendix 5 – the duty of the auditor to report matters of material significance to Charity Commission for England and Wales and the Office of the Scottish Charity Regulator. This material has been updated to reflect anticipated changes in the charity regulators’ guidance on matters of material significance.

The material previously covered in the section called special features of charities has been incorporated, where relevant, into ISAs (UK) 250, 315, 330 and 600. ISAs (UK) 315 and 330 have been updated to reflect changes in the charity accounting framework and best practice where appropriate.

To avoid duplication a new appendix has been inserted into the PN which sets out conditions and events which may give rise to a risk of material misstatement specific to charities. The section on ISA (UK) 320 has been updated to provide further guidance about judgments about materiality and both the size and nature of misstatements, while the section on ISA (UK) 570 and going concern has been expanded and updated to provide more guidance to auditors.

In addition, the section on ISA (UK) 720 has been updated to provide guidance on how the revised standard applies to the trustees’ report.

The FRC plans to issue a final version of the revised PN later in 2017.

The deadline for feedback is 25 August. Comments are invited in writing and should be sent to Kate Acott: aat@frc.org.uk

Exposure Draft: Practice Note 11: The audit of charities in the United Kingdom is here.

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