Trustees need to understand how the widespread, and potentially highly severe, implications of the coronavirus on charities should be considered in annual accounts, the regulators involved in setting charity accounting rules have said.
The Charities SORP-making body has issued guidance that warns that government measures to limit the spread of the virus have “potential implications for charity income, expenditure and commitments, and the value of charity assets and liabilities. In some cases, the implications may be so severe as to cast doubt upon a charity’s financial sustainability.”
It says that when preparing accounts that have not yet been approved, “trustees should consider whether information needs to be included to explain the impact of the Covid-19 situation on their charity”. In addition, the current situation means that “there could be changes to the financial statements needed as a result of the Covid-19 situation and it is important that trustees understand and consider these”.
Key areas of consideration highlighted in the guidance, with the relevant paragraphs of the SORP noted where appropriate, are:
- In reporting the main achievements of the charity (paragraph 1.20) explaining how the virus control measures affected the charity’s activities.
- Taking the opportunity to explain any financial uncertainties regarding the charity’s financial sustainability and consideration of going concern (paragraph 1.23) and the steps being taken to address these uncertainties.
- Explaining how the contribution of volunteers, where appropriate, assisted the charity in its work in managing in the changed circumstances (paragraph 1.39).
- The impact on the charity’s ability to fundraise (paragraph 1.41) and how the trustees managed this situation.
- How the outbreak of the virus has affected staff, volunteers and beneficiaries and the implications for the charity’s operations and activities for the coming year (paragraph 1.45).
- How the financial and operational effects of the virus and the control measures relating to the virus affected the principal risks and uncertainties facing the charity during the reporting period (paragraph 1.46).
- Give consideration whether there are any implications for any existing or potential defined benefit pension liability (paragraph 1.47) and investments the charity holds (paragraph 1.47).
- Consider any impact on the charity’s reserves policy, level of reserves and any change to designated funds set aside for future commitments (paragraph 1.48).
- Consider the likely impact of the virus control measures and potential duration of the control measures on the future aims and activities of the charity (paragraph 1.49).
- The impact of the virus related control measures on any wider network of which the charity is a part and how this affects the charity’s operations (paragraph 1.51).
The SORP-making body points out the document is for guidance only. It does not replace the SORP and there is no obligation to follow it. The guidance can be found here.
The SORP-making body is made up of the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator and the Charity Commission for Northern Ireland.
The Charity Commission for England and Wales has already said that charities needing an extension to their annual return deadline due to coronavirus should contact it. It has said it will “act in a pragmatic way” where possible.