RFCCBS 7.2 Audit requirements

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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).