International accounting charity rules failing to gain support in the UK, says CFG

29 Oct 2021 News

Efforts to create an international standard for charity accounting rules have struggled to gain support in the UK, according to the Charity Finance Group (CFG).

A five-year project to develop international rules for charity accounting launched in September 2019.

Entitled International Financial Reporting for Non-Profit Organisations (IFR4NPO), the project is backed by the Chartered Institute of Public Finance and Accountancy (CIPFA) and Humentum, a global not-for-profit organisation working with humanitarian and development organisations.  

A consultation on the issues involved ran from January to September 2021, and IFR4NPO has now published the responses.

‘A mature accounting standard’

In its response to the consultation on the topic, CFG says that “despite significant effort, there is less engagement in the UK currently”.

It suggests that this may be because the UK already has “a mature accounting standard and guidance environment”.

It adds that the project’s “concurrence with the updating of the [Charities] SORP”, the UK’s own rules and guidance for charity reporting, could also be a factor.

A survey published in the April 2021 edition of Charity Finance found that less than half (43%) of respondents (all of which were UK-based) supported the introduction of international accounting rules.

However, only 18% were directly opposed, with a further 39% unsure about the issue.

The Honorary Treasurers Forum say in its response that there is some global appetite for international accounting rules, but “in the richest and most influential jurisdictions, for historical reasons standard setters continue to work largely independently”.

The role of the Charities SORP

Despite the “mature” environment in the UK, the responses suggest there are still issues with the SORP.

CFG says that whilst the SORP does “a very good job of applying the Financial Reporting Standards in the context of charitable activity it cannot escape from the fact that the standards were developed with private, for profit, enterprise in mind”.

“Thus, time and again issues arise which demonstrate that non-profit reporting is being squeezed into a less than appropriate mechanism, frequently arguably drawing out information which may not represent the most important financial and other data in the context of charities.”

It adds that, some accounting elements produce “some-what perverse results which warp the presentation of charity accounts and which then require further explanation or disclosure to make sense to the users of accounts”.

However, the Institute of Chartered Accountants England and Wales (ICAEW) believes that the SORP can provide some guidance in the creation of new international standards.

It agrees with IFR4NPO that current international accounting frameworks for SMEs can be used as the basis for a new not-for-profit equivalent and that some adaption will be needed.

“We believe that the UK experience shows that this is possible, eg, through FRS102 and the Charities SORP, and we support the approach of the project in considering international experience in this context,” it says.

CFG concedes that, despite the issues it highlights, UK charities will need to continue to follow the SORP “rather than re-invent the wheel” and that “the principles set out in the SORP and the detailed guidance provided by the Charity Commission provide a robust structure for NPO accounting”.

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