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Accounting and reporting

Should you be asking for your auditor’s QAD score?

By David Ainsworth

The chances are, your auditor will have been visited at some stage by an organisation which looks like a whole tin of Alphabetti Spaghetti – the ICAEW QAD – or the Quality Assurance Department at the Institute of Chartered Accountants for England and Wales.

If you’ve ever asked the question “Who audits the auditors?” the answer is, it’s usually these guys. Most auditors get inspected on a six-year cycle, according to ICAEW.

Not everybody gets QAD inspections. Some are subject to scrutiny by the FRC or other bodies. But the chances are that most charity auditors will be in the QAD regime.

Auditors cannot publish the contents of the QAD report but can reveal the scores, and many already do. ICAEW’s position is that it is reasonable to ask for scores and that auditors should provide them, or give a reason why not. Broadly, CFG would advise that charities ask for QAD scores and that auditors should provide them.

Separately, auditors are usually happy to reveal customer satisfaction scores, and it may be worth asking for these, and checking out the rankings in surveys such as that conducted annually by Charity Finance magazine (I should declare an interest as a former deputy editor of this title). But neither of these is an independent assessment of the quality of your auditors.

There’s an inherent tension in the audit process which has the potential to create unease. Auditors are paid for by those whose accounts they are assessing, who are therefore the customers. But some customers might want an easy ride from their auditor, without too many tricky questions, or they might primarily seek a lower price, and be less concerned about the rigour of the process.

But there are many external stakeholders whose primary interest is that the audit process is about getting the accounts to look as true and fair and possible, which means offering quality and challenge, not cheap and easy.

There are of course many mechanisms in place to ensure that auditors don’t skimp on their duties, and have the freedom to blow the whistle when necessary. In the wake of the Kids Company scandal, where the auditors came in for criticism, there has been a discussion about how much this should be strengthened in the sector. The bottom line, however, is that the tension can never be eliminated so long as charities pay for their own inspection.

This audit issue is particularly crucial for charities. Our sector is subject to more and more scrutiny, and the most common vehicle proposed to satisfy that scrutiny is our annual accounts. We place a lot of weight on these documents.

Many charities do not have independent inspections from bodies such as the CQC or Ofsted (themselves of questionable quality, but at least an independent means of public assurance). In this case, there may be nobody responsible for assessing what the charity actually delivers value, and the accounts in this place are often all we have to go on to assure ourselves that the charity is well run.

But the Charity Commission’s own surveys of its register show that many charities are not compliant with existing regulations, and reporting on everything they are required to. So the role of audit in this space cannot be underestimated. It’s therefore really important that well-run charities are taking all the steps they can to assure themselves that not just their own auditors, but all those working in the sector, are doing as strong a job as possible.

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