Charity accounting is “not best served” by its current focus on cash flow and surplus, and the focus should be put instead of charities’ impact and public benefit, the joint chairs of the Sorp committee have suggested.
Nigel Davies, head of accountancy services at the Charity Commission, and Laura Anderson, head of professional advice and intelligence at OSCR, the Scottish charity regulator, have said in an article published today they believe that “public benefit issues should be at the centre of reporting and accounting and not an add-on”.
Previously the Financial Reporting Council, which sets UK accounting standards, has said that it believes charity accounts should be produced for the benefit of donors, but Davies and Anderson have said they think this is not correct.
“SORP research in 2008-09 identified that donors and funders are not the main audience,” they said. “The group of stakeholders is far wider including beneficiaries, the public, volunteers and charity staff.
“All the research strands point to the cause, good use of the money, and making a difference to beneficiaries as the focal points.
“We believe if you follow this logic through, the sector is not best served by a for-profit focus on cash-flows and surpluses.”
In the article they ask whether the trustees’ annual report should be required to give greater attention to “the activities for public benefit, the evidence pointing to the difference the charity makes, transparency about decisions and priorities set by the trustees in the use of funds, how the needs of beneficiaries are identified and how the charity plans to meet those needs in the future”.
They also ask whether the charity audit process should be changed.
“Could audit be extended to consider the steps trustees take to identify the needs of beneficiaries, and how they obtain value for money and manage conflicts of interest?” the article says.