Charities call for reform of accounting rules

05 Feb 2019 News

Charity representative bodies have called for reforms to the Statement of Recommended Practice, the set of rules which govern charity accounting, in their responses to a consultation on how to reform the process.

But the Charity Finance Group said it thought proposed reform could create an administrative burden for charities. 

The consultation, which closed yesterday, came after mounting pressure over the past 18 months to reform the existing process.

Joe Saxton, founder of nfpSynergy, resigned from the SORP committee in autumn 2017, saying the process was "technical and full of jargon", while the committee’s chair Nigel Davies has argued that charity accounting is “not best served” by its current focus on cash flow and surplus.

Now, in response to the consultation, some organisations have backed changes to both the SORP and the membership of the committee, while others have urged caution.

'Good arguments for a wider range of stakeholders'

NCVO said it could “see good arguments” that the committee’s membership “would benefit from a wider range of stakeholders”.

It said: “The most important thing is to increase engagement, however this is done. That could be via more members of the committee or working groups or a more extensive consultation process.

“The committee should therefore increase its accessibility and engagement with non-accounting stakeholders, either by widening its core membership or by establishing advisory groups made up by people working and/or volunteering in charities who are not accounting experts.”

NCVO said there was little representation of donors on the committee despite them being one of the main users of accounts.

It also said better involvement of smaller organisations in the SORP making process could help to address their limited capacity compared to larger organisations.

The Directory of Social Change (DSC) similarly said the committee should incorporate “diverse stakeholders beyond the accounting profession”.

It said: “The committee needs to take the needs and viewpoints of these organisations into consideration not only in its decision-making but in its composition.”

Meanwhile the Association for Charitable Foundations said: “We recommend a better balance on the advisory board between those who prepare accounts and those who read them, in particular there should be greater representation of charitable foundations.”

'Administrative burden'

Charity Finance Group (CFG), however, disagreed with suggestions that the SORP was too technical, saying this was the primary purpose of the committee.

It said: “We do not think that the work of the SORP committee is overly technical in its approach. By its nature, the SORP committee will inevitably have to discuss technical content.

“This is not to say that this is its only remit, and that other views should not be heard, but moving away from the necessary technical discussions would not be conducive for the committee making better decisions.”

Many in the sector have suggested that the SORP should be changed to focus on more than just financial reporting, but CFG said this would increase the burden on charities.

It said: “While there may be a temptation to extend the remit of SORP to cover a much wider range of metrics and measurements, this would distort its primary purpose.

“This would be of great concern to CFG, as it would exponentially increase the administrative burden charities already face, and would correspondingly increase costs in meeting these additional requirements.

“It is our view that these additional costs placed on charities would outweigh any potential benefits.”

“Furthermore, it is far from clear if including additional information in the SORP would be the best way of communicating these messages to a wider audience, as the SORP was never intended to cover this wide a remit.

“As there are other, better, means of charities effectively demonstrating transparency to donors, beneficiaries and the general public.”

Must remain independent

CFG also accused the Charity Commission of trying to have too much influence over the SORP, saying the committee’s independence should be protected.

It said: “The SORP committee is an advisory body to the Charity Commission and should therefore remain independent and removed from the governance structures of the Commission for it to do its job effectively.

“In recent years the Charity Commission has moved to a more populist approach. So instead of advising, the Commission has attempted to influence the SORP, reflecting its views moving beyond its merely advisory role.”

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