Charity Accounting and Reporting Rules

Exactly how easy is it to understand charity accounting and reporting rules?

For quite a long time there has been fair amount of pressure from all the accountancy bodies in England and Wales, including the two major bodies, ICAEW and ACCA, calling the reforms to the Statement of Recommended Practice (SORP). Earlier this month charity representative bodies also joined the accounting bodies on calling for reforms to the SORP, in their response to a consultation on how to reform the process which closed earlier this month.  

The SORP oversight panel, comprising of representatives from the charity regulators in Scotland, Northern Ireland, Republic of Ireland, England and Wales, launched the consultation in November and the process closed on the 4 February. You can obtain a full copy of the consultation document here.

A simplified charities SORP could make charity accounts more accessible to trustees and other end users including potential donors. We act for many charities and we find that trustees who have no financial background find it hard to understand the SOFA, Statement of Financial Activities. The balance sheet for charities are very similar to any other trading entity financial statements however the SOFA is very different. We believe the SOFA is too complicated and for charities with income of less than £100k the SOFA should incorporate any material income and expense categories on the face of it, rather than as part of notes to the accounts. There should more detailed disclosures about Governance and support costs.

The Association of Accounting Technicians (AAT), a charity that provides accountancy qualifications, has called for more representation from donors, beneficiaries and trustees from and accountants for smaller charities on the SORP Committee. The AAT says that it would be useful to include some "non-technical professionals" on the SORP Committee to reflect the views of people who use accounts, as well as those who create them. This would address concerns about SORP committee being considered as having too much emphasis on being technical.

Charities and not-for-profits are always advised to have a trustee who has a background in accounting and finance who can lend their skills when it comes to reporting. In addition, it may also be worth seeking the advice of an accountant with experience in the charity and not-for-profit sector.

For further help with any financial reporting, you can contact myself, Suda, on suda.ratnam@raffingers.co.uk or on 020 3146 1608.

Subscribe to our newsletter to get the latest updates in the charity and not-for-profit sector.