SORP working groups to consider three major charity accounting changes

11 Aug 2017 News

The charities SORP committee intends to set up working groups to consider three changes to charity reports and accounts, according to its co-chair.

The committee guides the development of the Charities Statement of Recommended Practice - the sector's accounting rules - and is jointly headed by figures from the Charity Commission and OSCR, the Scottish charity regulator. It includes charity FDs, auditors, academics and representatives from infrastructure bodies.

Speaking to Civil Society News, the committee’s co-chair Nigel Davies confirmed it has set up three working groups to consider changes to reporting.

One will look at the possible introduction of simpler reporting for smaller charities via a third “tier” of requirements.

Another will examine changes to the reporting of governance, with the aim of ending "boilerplate" statements. 

The final group will look at whether charities should present a “key facts summary” in their accounts.

Possible third reporting tier

At present, the SORP is arranged in two tiers, with charities that have income over £500,000 required to give additional disclosures. 

A research exercise designed to guide the SORP’s future development suggested a new, third tier for large charities to give even more disclosures, perhaps those with income above £10.2m.

However, feedback to the consultation highlighted widespread concern about the reporting burden that is being placed on smaller charities.

In the SORP committee’s March meeting, several attendees echoed this concern, and it now seems likely that any new third tier will be used to reduce the requirements for smaller charities.

Governance reporting

In the committee’s May meeting, Sarah Anderson of the accountancy firm Deloitte questioned the value of existing governance disclosure. 

According to meeting minutes, she said: “Charities often include ‘boilerplate’ statements in order to meet certain requirements, which offer little benefit to the users of the accounts.”

Davies said that “there was a general consensus for the current disclosure requirements around governance to be revisited”, adding his view that that there is “an opportunity for greater guidance to be offered in this area”.

Key facts summary

In the research exercise, the key facts summary was described as “a simple summary containing key information” in order to assist the general public. 

The consultation suggested that the figures within this summary could be either mandated or chosen by individual charities, and could include income, expenditure, and charitable expenditure as a proportion of total income. 

The latter suggestion sparked concerns that members of the public and the media could use these figures to draw simplistic and misleading comparison between charities, and lead to a “race to the bottom” in terms of minimising back office costs.

Opposition

At the SORP committee’s May meeting, it was revealed that 84 per cent of written respondents to the research exercise had “disagreed with further consideration of the theme”.

Attendees at consultation events had been more positive, broadly supporting the idea of some sort of summary as “encouraged practice”, but they nevertheless had “little appetite for the ‘facts’ within the summary to be mandated”.

Joe Saxton, founder of the market research consultancy nfpSynergy, told the committee that he believes the contents of the key facts summary should be mandated to “satisfy the public’s desire for more accessible information about charities”.

However, Caron Bradshaw, chief executive of the Charity Finance Group, said she had reservations as “there are so many different types of charities and operating models”. She called for “careful consideration” if such comparators were to be introduced.

Speaking subsequently to Civil Society News, SORP committee co-chair Nigel Davies confirmed that the summary will only be introduced as a recommended best practice requirement rather than being mandatory.

“The SORP research was emphatic that it shouldn’t be mandatory.”

 

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