External Scrutiny
All Scottish charities are required by law to prepare annual accounts. Annual accounts consist of:
- financial statements and explanatory notes (numerical information)
- a Trustees’ Annual Report (a narrative providing details which cannot be expressed in financial terms)
- an external scrutiny report.
We have published specific guidance on how to prepare accounts. Click on the links below to read this guidance or read our Scottish charity accounting page.
- Scottish Charity Accounts: A Guide to the 2006 Regulations
- Scottish Charity Accounts: OSCR Receipts and Payments Accounting Workpack.
Under statutory requirements, the accounts of Scottish charities must also be externally scrutinised. That is, someone who is independent of the charity must review the accounts and produce a report, attached to the accounts, that highlights any issues to the reader.
External scrutiny is an important component of the overall regulation of charities in Scotland.
Forms of external scrutiny
There are two recognised forms of external scrutiny:
Independent examination
An independent examination will look at a charity’s accounting records and annual accounts and consider whether the annual accounts are a fair reflection of the underlying records. An independent examination provides a degree of comfort to the reader that the figures in the accounts, including the Trustees’ Annual Report (TAR), present an accurate picture of the financial activity of the charity during the accounting period.
Also involved in the examination process is consideration of any unusual items in the accounts that may require further discussion or explanation from the charity trustees.
Please read our Independent Examination guidance for further information about the requirements and best practice procedures. You can choose to view the guidance in full or read specific sections which have been written with particular groups in mind.
Audit
Under the 2006 Regulations, if the term ‘audit’ is used in a charity’s constitution or governing document, the charity must have its accounts audited by either:
- a registered auditor
- the Auditor General for Scotland
- an auditor appointed by the Accounts Commission for Scotland (responsible principally for public bodies).
Audits are more commonly required for larger charities, although smaller charities may also require an audit as a result of a provision within their governing document or a decision of the charity trustees.
Choosing the correct form of external scrutiny for your charity
The type of external scrutiny you choose depends on your charity’s gross income and net assets or whether or not the charity is also a company.
For accounting periods starting on or after 1 April 2008, please refer to our publication Independent Examination: OSCR guidance for charities and independent examiners to determine the correct form of external scrutiny to which your charity is required to subject its accounts. If your charity is not a company, please refer to Figure 1 (on page 9). If your charity is also a company (registered at Companies House), please refer to Figure 2 (on page 10).
If you require information for an earlier accounting period, please refer to the flowcharts in Part 1 of our publication, Scottish Charity Accounts: a guide to the 2006 Regulations.
Guidance
We have published guidance for charities and independent examiners with further information about the requirements and best practice procedures. This is a large document. You can choose to download the full guidance or those sections which are applicable to you. For each of the sections of the guidance we have provided you with the audience to whom it is applicable. Please click on the links below:
Full guidance:
Guidance sections:
Section 1: Introduction (all)
Section 5: Who can act as an independent examiner? (charity trustees and independent examiners)
Section 6: How to select and appoint an independent examiner (charity trustees and independent examiners)
Section 7: Preparation for an independent examination (charity trustees)
Section 8: The work of the independent examiner (independent examiners)
Section 9: Whistleblowing – continuing reporting duties for independent examiners (independent examiners)
Section 10: Cross border charities (charity trustees and independent examiners of cross border charities only)
