What is the Difference Between Independent Examination and Audit?

A straightforward guide explaining exactly how independent examination differs from audit for UK charities.

The Core Difference

The main difference between independent examination and audit comes down to how much work is done and how much assurance is provided. An audit is a thorough, detailed review of your charity accounts. An independent examination is a lighter touch review.

Imagine you are driving a car. An audit is like a full MOT, where every part gets checked in detail. An independent examination is more like a quick visual check of the tyres and lights. Both give you some confidence the car is roadworthy, but one is much more detailed than the other.

For charities, the choice is usually made for you based on your income level. But understanding the difference helps you know what to expect and why the costs vary so much.

The Six Key Differences

Here are the six main ways in which independent examination and audit differ:

1. Depth of Testing

An auditor will test your financial systems and controls in detail. They will check many transactions to make sure everything is working correctly. An independent examiner does not do this level of testing. They will look at a sample of transactions to see if things appear to be in order, but they do not test every item.

2. Level of Assurance

An audit provides what is called "reasonable assurance". This is a high level of confidence that your accounts are correct. An independent examination provides "limited assurance". This means the examiner is saying the accounts look reasonable, but they have not checked everything in detail.

3. Cost

This is often the biggest practical difference. A statutory audit for a charity typically costs between £2,000 and £10,000 or more, depending on the size and complexity of your charity. An independent examination usually costs between £300 and £2,500. That can represent a significant saving for smaller charities.

4. Time Required

Because an audit involves more work, it takes longer to complete. An independent examination can usually be done more quickly, which is helpful if your filing deadline is approaching and you need the report fast.

5. Who Can Carry It Out

An audit must be done by a registered auditor who is supervised by a professional body. An independent examination can be done by a wider range of people. This includes qualified accountants, people with relevant experience, or even volunteers with the right skills for smaller charities.

6. Fraud Detection

An audit has better fraud detection capabilities because of the extensive testing involved. An independent examination has limited ability to detect fraud, simply because the examiner does not check enough transactions to spot irregularities. This is an important limitation to understand.

Quick Comparison

Feature Independent Examination Audit
Assurance level Limited Reasonable
Testing depth Sample-based Extensive
Typical cost £300 to £2,500 £2,000 to £10,000+
Time needed Less time More time
Fraud detection Limited Better
Who can do it Various people Registered auditors only
Required when £25k to £1m income Over £1m income

What Each One Checks

Understanding what each process actually checks can help you see the difference more clearly:

Independent Examination Checks

  • Accounting records are complete
  • Income and expenditure are recorded correctly
  • Bank balances can be verified
  • Funds are properly categorised
  • Accounts match the underlying records
  • Trustees report is consistent with accounts

Audit Checks All of the Above, Plus

  • Internal controls are working effectively
  • Systems and processes are robust
  • Transactions are properly authorised
  • Asset protection is adequate
  • Risk management is appropriate
  • Detailed testing of many transactions

Which Does Your Charity Need?

The law determines which one your charity needs based on your annual income:

  • Under £25,000. No independent examination or audit is legally required, but many charities opt for some form of external check as good practice.
  • £25,000 to £1 million. Independent examination is required by law.
  • Over £1 million. A full statutory audit is required.

There are also other triggers that can require an audit, such as if your charity is a charitable company or if your governing document requires an audit regardless of income level.

What You Need to Remember

  • Independent examination is less thorough than an audit
  • Independent examination costs significantly less than an audit
  • Independent examination provides limited assurance, audit provides reasonable assurance
  • Audit has better fraud detection capabilities
  • Your charity income determines which one you legally need
  • Most charities with income under £1 million only need independent examination

Not Sure What Your Charity Needs?

Our experienced charity accountants can help you understand whether your charity needs an independent examination or a full audit. We will guide you through the requirements and provide the right service for your needs.

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