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RFCCBS 7.2 Audit requirements

RFCCBS 7.2.1G

1The starting point is that every society is required to appoint one or more qualified auditors to audit its accounts and balance sheets for each year of account.

RFCCBS 7.2.2G

1Societies can then either be exempt from some of the requirements or ‘disapply’ them. We deal with exemption and disapplication below from RFCCBS 7.2.8 and RFCCBS 7.2.12 respectively. If a society has disapplied the audit requirement it may still have to appoint a qualified auditor to produce a report on its accounts. We deal with this at RFCCBS 7.2.21.

The audit

RFCCBS 7.2.3G

1The auditors must report to the society on whether the year’s revenue account and balance sheet, and any other accounts they examine, give a true and fair view of the society’s affairs, otherwise comply with the legislation, and are in agreement with the books of account for the year. Auditors also give their opinion on whether proper books of account and control systems have been maintained.

RFCCBS 7.2.4G

1In preparing their report, the auditors can carry out any necessary investigation, see the society’s books and other documents at any time, and demand information and explanations from the society’s officers. They can also attend and speak at the society’s general meetings and must get the same communications which members get about the meeting.

The auditor

RFCCBS 7.2.5G

1The term ‘qualified auditor’ means someone eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006. They must be a member of a recognised supervisory body (such as the Institute of Chartered Accountants in England and Wales and the Association of Chartered Certified Accountants) and eligible for appointment under the rules of that body.

RFCCBS 7.2.6G

1The auditor must not be an employee or officer of the society or its holding or subsidiary society. They also cannot be an employee, employer or partner of a society employee or officer. They must not be prohibited under the Companies Act 2006 from being auditor of a subsidiary company of the parent society. This is to ensure their independence.

RFCCBS 7.2.7G

1Auditors are appointed and removed by the members’ meeting. However, no annual resolution is needed to reappoint the same auditor from one year to the next. Removing or replacing the existing auditor requires a resolution. 28 days’ notice of this resolution must be given to the members and the auditor. The auditor can make verbal and written representations to the meeting considering the resolution.

Small Society Exemption

RFCCBS 7.2.8G

1A society can appoint two or more lay auditors instead of a qualified auditor if, in its preceding year of account, it had:

  1. (1)

    turnover of less than £5000; and

  2. (2)

    assets of less than £5000; and

  3. (3)

    fewer than 500 members.

RFCCBS 7.2.9G

1However, if the society’s rules only permit a full professional audit, the society will need to register a rule amendment with us before they can use the small society exemption.

RFCCBS 7.2.10G

1The following societies can never use the small society ‘lay audit’ exemption:

  1. (1)

    regulated housing associations;

  2. (2)

    a subsidiary of another society;

  3. (3)

    a society with one or more subsidiaries (whether companies or societies);

  4. (4)

    a society that has to prepare accounts under the Insurance Accounts Directive (Miscellaneous Insurance Undertakings) Regulations 1993.

RFCCBS 7.2.11G

1Anyone can be a lay auditor, as long as they are not an officer or employee of a society or a partner, employee or employer of any society officer or employee.

Disapplication of the qualified auditor requirement

RFCCBS 7.2.12G

1If a society does not qualify for the small society exemption, it may be able to ‘disapply’ the requirement to appoint a qualified auditor if the following conditions are met.

RFCCBS 7.2.13G

1These conditions are that the society is:

  1. (1)

    not in a category required to have a full audit (see RFCCBS 7.2.26);

  2. (2)

    not required by its rules to have a full audit;

  3. (3)

    below certain financial thresholds; and

  4. (4)

    a society whose members pass a resolution by the required majority to disapply the audit requirement.

Financial Thresholds

RFCCBS 7.2.14G

1The thresholds referred to above are:

Non-Charity

Charity

(1)

value of aggregated assets at the end of the previous year of account was less than £2.8m; and

(1)

value of aggregated assets at the end of the previous year of account was less than £2.8m; and

(2)

turnover for the previous year was less than £5.6m

(2)

turnover for the previous year was less than £250,000.

Disapplication Resolution

RFCCBS 7.2.15G

1A general meeting must pass a resolution to disapply the requirement to appoint a qualified auditor. It will pass if:

  1. (1)

    less than 20% of the votes cast are against the resolution; and

  2. (2)

    less than 10% of all members entitled to vote cast a vote against it.

RFCCBS 7.2.16G

1If this resolution is not passed, the society must have a full professional audit.

RFCCBS 7.2.17G

1The resolution only operates for one year of account. So a society must pass a resolution in each year of account it wants to opt out of the full audit requirement. For instance, if a society’s financial year-end is 31 December, it must pass the disapplication resolution before 31 December.

Society rules on accounts and audit

RFCCBS 7.2.18G

1If a society currently requires a professional auditor to audit its accounts and wants to disapply this requirement or use the small society exemption then a rule change may be needed. For example, a rule that states ‘…and the audit will be carried out by a registered auditor’ ties the society to the appointment of a registered auditor. If the current rules only permit a full professional audit, then a rule amendment must first be passed and registered with us.

RFCCBS 7.2.19G

1The small society exemption and disapplication provisions do not override society rules. The society will still need to amend its audit rule to use the relaxed auditing requirements. A rule change to state, for example:

‘… and an audit, where necessary in law, or where the membership requires, will be carried out by a registered auditor or two or more lay auditors, where the condition for appointing lay auditors prevail’

would allow the society to take advantage of the relaxed auditing requirements.

RFCCBS 7.2.20G

1We assess rule changes on a case by case basis. Generally however, we will not register a rule change unless it allows for circumstances where an audit may be required either by law or by the members. For example, we would not register ‘the accounts will be examined by an independent accountant’. We encourage societies to either use the example given above or to follow the wording below:

‘The members shall vote annually, as allowed by section 84 of the Co-operative and Community Benefit Societies Act 2014, at the Annual General Meeting, to have, when necessary in law or where the membership requires:

(1) an audit carried out by a qualified auditor

(2) an audit carried out by two or more lay auditors

(3) a report by a qualified auditor

(4) or unaudited accounts, where the conditions for such exist.

If a full audit or a report is required, a person who is a qualified auditor under section 91 of the Co-operative and Community Benefit Societies Act 2014 shall be appointed. The qualified or lay auditors, if so appointed, shall not be officers or servants of the society and nor shall they be partners of, or in the employment of, or employ, an officer or servant of the society. Lay auditors shall be chosen by the Committee of Management from the general membership and/or others.

If the membership vote for unaudited accounts, the society’s income/expenditure ledger shall be scrutinised by the secretary and committee members only and signed, as a true record, by the secretary and two committee members or any other number as may be required by legislation. An income/expenditure report will be prepared to present to the society’s members at each Annual General Meeting’.

The Report

RFCCBS 7.2.21G

1If a society chooses not to have a full audit from a qualified auditor they must, if their turnover was over £90,000 in the preceding year of account, appoint a qualified auditor to prepare a report on the accounts and balance sheet. Regulated housing associations in England and Wales must appoint a qualified auditor to prepare a report on the account and balance sheet whatever their turnover.

RFCCBS 7.2.22G

1The report on the accounts and balance sheet is less onerous than a full audit. The report must state whether, in the opinion of the qualified auditor making the report:

  1. (1)

    the revenue account or accounts, the other accounts (if any) to which the report relates, and the balance sheet are in agreement with the books of account kept by the society;

  2. (2)

    on the basis of the information contained in the books of account, the statutory account complies with the requirements of the Act; and

  3. (3)

    the financial criteria allowing the production of a report instead of a full audit have been met.

RFCCBS 7.2.23G

1The qualified auditor preparing the report has the same kinds of powers as an auditor. These include carrying out any necessary investigation, seeing the society’s books and other documents at any time, and being able to demand information and explanations from the society’s officers. They are also entitled to attend and speak at society general meetings and get the same communications about the meeting as members. The auditor should sign their report.

RFCCBS 7.2.24G

1Where the relevant conditions are met, and the society produces unaudited accounts, the revenue account and balance sheet must still be signed by the secretary and two committee members of the society acting on behalf of the society’s committee.

Societies needing full professional audit

RFCCBS 7.2.25G

1A society with a turnover of more than £5.6m (£250,000 if charitable) or total assets of more than £2.8m in the preceding year of account must always have a full professional audit.

RFCCBS 7.2.26G

1Any society that is one of the following, or was at any time during the accounting period, cannot disapply the audit requirement

  1. (1)

    a Scottish regulated housing association;

  2. (2)

    a subsidiary of another society;

  3. (3)

    a society with one or more subsidiaries (whether those subsidiaries are companies or societies);

  4. (4)

    a society that holds a deposit or has done so at any time since the end of the preceding year of account (unless the deposit was withdrawable share capital).