Example

Post–audit report

[date issued]
Example – Post-audit report [date issued]

Contents
Introduction for trustees .................................................................................................................... 1

Outline of audit process .................................................................................................................... 2

Amendments to the financial statements .......................................................................................... 4

Highlights of the financial statements ............................................................................................... 5

Governance and the control environment......................................................................................... 6

Emerging issues and good practice.................................................................................................. 7

Systems and controls recommendations .......................................................................................... 8

Appendix A - Audit adjustments........................................................................................................ 9

Appendix B - Immaterial unadjusted items ..................................................................................... 10

Example – Post-audit report [date issued]

Introduction for trustees

This is our report to you following the audit of the financial statements for the year ended 31 March
2006. The primary purpose of the audit is to report our opinion on the financial statements, which is
covered in the audit report attached to the financial statements. Although it is not explicitly stated, an
unqualified audit report means that we did gather adequate audit evidence to support the assertions in
the financial statements, that we are satisfied that the books and records are in agreement with the
financial statements and that we received all the information and explanations we considered
necessary for the audit. We are also satisfied with the disclosures in the notes to the financial
statements. We do not audit the trustees’ annual report, but we do check that this is consistent with the
financial statements. However, the audit procedures are designed to give us reasonable assurance
that the financial statements, taken as a whole, are free of material misstatement. It is the responsibility
of the trustees to ensure, as far as possible, that accurate and reliable accounting records are
maintained and to operate appropriate controls. The points we make in this report are some matters
we felt would be useful to bring to your attention, rather than a comprehensive review.

We outline our approach to the audit in the next section. The report covers the findings from our audit
work under the following headings:
• An explanation of adjustments which were made to the financial statements as a result of the audit
• A commentary on the highlights of the financial statements
• The key issues identified where we consider improvements could be made and which we feel
should be addressed by the trustees as a matter of priority
• Emerging issues for the sector which are relevant for ABC Charity
• The systems and control issues which, although not a priority, should be addressed by the senior
management team under the direction of the trustees, in due course

We have discussed the contents of this report with managers of the charity and their comments are
included as appropriate. We hope that the recommendations are practical and can be implemented.
We should be grateful if you would discuss the points at a trustees’ meeting. We welcome comments
and should appreciate a written response detailing action and implementation.

We should like to express our thanks to the management team and staff for all their help with the audit.

The contents of this report and appendices are for the attention and information of the trustees and
managers only. You may only disclose the contents of this letter and appendices to third parties (such
as funders) with our permission and we cannot be held liable for any reliance placed on the contents
by third parties.

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Example – Post-audit report [date issued]

Outline of audit process

The objective of the audit work is to enable us to give an opinion as to whether the financial statements
show a true and fair view of the results for the year and the state of affairs at the year end. As part of
our work we also review whether the financial statements comply with relevant accounting standards
and the Statement of Recommended Practice (SORP) for charities. We design audit tests to provide
assurance that the charity’s financial statements are free from material error and so that we have a
reasonable expectation of detecting material misstatement in the financial statements or accounting
records resulting from irregularities and fraud.

The audit approach was sent to you on [date] and our responsibilities are set out in our engagement
letter [date].

Scope of the audit

We undertook a statutory audit in line with the terms of our audit appointment.

Key points of our audit approach

We consider the key risks for the audit to be those concerned with income recognition and systems,
and returns from branches. We conducted audit work on the returns received from the branches by
head office to confirm the reliability of the information contained in them. Our work focussed on:
• Documenting systems and controls over income streams
• Substantive testing of income streams
• Agreeing returns received from the branches to underlying books and records and reviewing the
systems and controls in operation.

We used “substantive testing” – meaning that we verified particular transactions or balances by looking
at a sample of invoices and receipts or by tracing from source documents to the final financial
statements. At the planning stage, we designed tests to provide us with sufficient audit evidence to
support an opinion as to whether the financial statements show a true and fair view. We received
sufficient audit evidence to form our opinion from this approach.

Our audit work seeks evidence that the financial statements are materially correct. Small amounts do
not affect a reader’s understanding of the financial position. For this audit, the level of materiality we
used was £xxx for income and expenditure transactions and £xxx for balance sheet balances. These
figures were used only as a guide and were subject to judgemental change depending on the findings

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Example – Post-audit report [date issued]

during the audit. This also excluded certain transactions which are always material even when the
amount involved is small, such as transactions with trustees.

Audit process
The audit proceeded as planned and according to the agreed timetable. We can confirm that the audit
opinion will be unqualified.

Independence and objectivity

We operate a number of checks to ensure that we continue to act independently. We have enquired
whether any partners or staff have a connection to the group, its staff or trustees. We are not aware of
any matters which would impact on our independence and objectivity as auditors.

Non-audit work we have undertaken during the year included:

• Providing advice on VAT matters

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Example – Post-audit report [date issued]

Amendments to the financial statements

As part of the audit we identified items which, either on their own or cumulatively, were of sufficient
significance that without adjustment the statutory accounts would have been materially incorrect. As
such we have adjusted the accounts for these items. We have made adjustments to the accounts for
some less significant items that, despite being a lower value, were judged to clarify the financial
position and performance of the charity.

None of the adjustments made to the financial statements caused a change to the net movement in
funds.

The detail of these adjustments is included in Appendix A.

Immaterial unadjusted items

During the audit we identified other potential adjustments which are small and insignificant. These
unadjusted items are included as Appendix B.

As trustees who are responsible for the preparation of the financial statements, you are responsible for
reviewing the unadjusted items and confirming that no adjustments are required to the financial
statements in the letter of representations.

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Example – Post-audit report [date issued]

Highlights of the financial statements

[Comments on the results and any new accounting policies or changes that affect the way the financial
information is presented.]

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Example – Post-audit report [date issued]

Governance and the control environment

This section details those issues we identified which we feel should be dealt with as a priority by the
trustees in conjunction with the senior management team.

Examples:

Reserves policy
The reserves policy was established several years ago and therefore reflects the risks and
environment which applied at that time. The policy should be reviewed at least annually to ensure that
the fundamental reasons for maintaining reserves are valid and that the level of reserves is
appropriate.

Relationship with the trading subsidiary

The charity has a wholly owned subsidiary to carry out trading activities not permitted within the main
charity. Each year the profits generated by the trading subsidiary are donated to the parent
undertaking via a gift aid payment.

It was identified during the course of this year’s audit that the gift aid due in respect of the profit
generated in 2003/04 has not yet been physically paid over to the parent undertaking. To avoid
suffering corporation tax on the profits generated, the payment must physically take place within nine
months of the end of the financial year (i.e. by 31 December 2004).

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Example – Post-audit report [date issued]

Emerging issues and good practice

These are matters which you may find helpful, consisting of notes and information on new
developments relevant to you, and possible improvements to implement what is considered best
practice.

Examples:

Revised charity SORP

The Charity Commission has released the new Statement of Recommended Practice (SORP 2005),
which sets out the accounting rules for charities. This can be downloaded from the Charity
Commission website at http://www.charity-commission.gov.uk

You will need to apply the revised SORP to financial statements from 31 March 2006 onwards.
However the comparatives within these accounts will need to be amended to reflect the revised SORP
and so consideration should be given to preparing a second set of figures for the year to 31 March
2005 reflecting the changes contained in the new SORP.

We have included the main features of the changes in Appendix C (not included in specimen) which
trustees may prefer to review, rather than the SORP itself.

Summary Information Return (SIR)

From 2005, charities with gross income of £1 million or more will need to complete the SIR. This will be
included as part C of the annual return to the Charity Commission and is intended to summarise key
information contained in the trustees’ annual report and accounts, and in other documents such as
annual reviews and websites.

The income of the charity for 2005 is above the £1m threshold, and it is likely that gross income in
2006 will continue to be above this.

As the SIR is designed to work with accounts prepared following SORP 2005, we would recommend
that you look at the sample SIR on the Charity Commission website http://www.charity-
commission.gov.uk/investigations/pdfs/sir2005.pdf to identify the types of information you will need to
report. This will enable you to ensure that future accounts and reports both follow the new SORP and
provide information in a format that can easily be extracted and summarised for the SIR.

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Example – Post-audit report [date issued]

Systems and controls recommendations

This section details the systems and controls recommendations that do not need the immediate
attention of the trustees but should be dealt with by the senior management team with the trustees’
support.

Examples:

Incoming resources
One of the key risks to be addressed at the audit was that concerning recognition of income. The
results of our audit testing provide assurance over the occurrence, completeness, measurement and
treatment of income. However, there are always questions over the timing of income and whether
income should be in the year in which an activity is completed, or taken to income as it is received. We
recommend that you draw up guidance for fundraising staff so that they know in advance how income
is going to be treated in the accounts.

Pin badges
You currently sell badges of your logo in shops and banks. VAT should have been accounted for, as
this was a sale, rather than a donation. There are concessions available to charities, but you must
invite donations, rather than specifying a selling price. You may suggest a donation of, say £1. This
also enables you to buy the badges at zero-rate VAT, but you should issue a certificate to the supplier.
We can supply the wording for the certificate or you can download it from the fundraising section of our
website. You only have to type this onto your letterhead.

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Example – Post-audit report [date issued]

Appendix A - Audit adjustments

Debit Credit

£ £

1. Being the removal from the balance sheet of funds held by the charity on behalf of another
organisation

Dr. Other creditors 20,348 -

Cr. Cash at bank and in hand - 20,348

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Example – Post-audit report [date issued]

Appendix B - Immaterial unadjusted items

Debit Credit

£ £

1. Being the identification of an audit expense incorrectly classified as a prepayment

Dr. Audit and accountancy expense 1,763 -

Cr. Prepayments - 1,763

2. Being the recognition of a debtor classified in the draft financial statements as a negative creditor

Dr. Accrued income 9,000 -

Cr. Accruals - 9,000

3. Being the clearance of the suspense account to recognise a VAT creditor

Dr. Suspense account 4,869 -

Cr. VAT creditor - 4,869

Being expenses incurred recognised incorrectly within the bank reconciliation rather than in creditors

Dr. Cash at bank and in hand 8,665 -

Cr. Trade creditors - 8,665

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