An expert panel set up by charity regulators to review how the sector’s accounting requirements are developed has criticised the lack of attention that has been given to the needs and challenges of smaller organisations.
The SORP oversight panel opened a consultation in November to hear views on how the process and requirements could be improved, and has now responded by publishing a report with its recommended changes.
The report calls for a “refocusing” of the Statement Of Recommended Practice (SORP) and greater simplification of reporting requirements for smaller charities, with more support for trustees.
It says that the advisory SORP Committee has a policy of "think small first", but that this has not always been acted upon, and that the needs of smaller charities have "not been demonstrably at the forefront of thinking by the SORP-making body".
Elsewhere, the panel’s report calls for the SORP Committee to be shrunk, to have a redefined role, and to include donors, funders and representatives of smaller charities.
It urges the Charity Commission and other regulators to produce best practice guidance for how voluntary organisations should report non-statutory financial information.
The report says: “There should be an explicit statement that where a charity provides financial information outside the statutory accounts it should be consistent with the SORP-compliant accounts.”
Other recommendations include broader and ongoing engagement with a much wider group of stakeholders, and charity regulators to ensure the SORP process is adequately resourced to implement the report’s recommendations.
The report’s recommendations will be submitted to the charity regulators for consideration and response.
The panel said it hopes that the report will be considered at board level by each regulator for support and allocation of resources to take the recommendations forward.
‘Tensions’ in responses from sector
Gareth Morgan, chair of the Charities SORP Committee Governance Review Panel, said the responses from the sector to the consultation brought out the “inherent tensions” of the regulation’s role.
He said: "The panel considered consultation submissions from some who were largely content with the current SORP-making process and only wished to see minor change, from others who called for more radical change to the structure and operation of the SORP Committee and its relationship to the charity regulators, and from some who felt that the whole paradigm of charity financial reporting under the SORP was fundamentally flawed in terms of meeting the needs of users.
“Reponses also highlighted the tensions between large and smaller charities as entities required to apply the SORP, issues between the regulatory frameworks in the four jurisdictions, and between the very different types of organisations in the charity sector but all subject to the SORP, including grant-makers, faith-based organisations, charities delivering public services, membership bodies and many other categories.
“Whilst we cannot resolve all these tensions, we believe that our recommendations will enable the SORP to be much more effective in future at bridging these demands.”
In response, Caron Bradshaw, chief executive of the Charity Finance Group, said: “We cautiously welcome the recommendation to reduce the number of participants in the SORP Committee.
“It is important that the balance of input does not become too skewed towards those entities who are have greater power to demand information, like funders and the government. A healthy balance between requirements and burden is maintained.
“We are interested in the practical implications of the recommendation to extend the SORP to, or otherwise codify, the financial non-statutory reporting of charities.
“It is really important that this does not become a perverse incentive to publish less information, or to ensure that information published meets the underlying accounting and financial reporting principles at the expense of being easy to understand.
“We are also cautious about the resources required to ensure this is a meaningful extension and that charities are supported adequately with resources and guidance.
“The reports and accounts of charities can never provide all the answers but they play an important part in signposting the questions users of accounts can ask.
“It’s important that in driving charities towards embracing the need to be transparent with stakeholders, we do not simply flood users with data.
“Information published needs to be understandable and accessible and we look forward to playing a part in ensuring that charities, and in particular finance professionals, continue to be the driving force behind greater transparency and increased standards of finance reporting.”
Meanwhile, Max Rutherford, head of policy at the Association of Charitable Foundations, said: “We welcome the publication of this review, which addresses a number of points that ACF raised in its submission.
“It is particularly pleasing to see the users of accounts given greater consideration, an explicit recognition of grant-makers as a primary audience, and a move towards a more representative advisory committee that will see funders and donors given greater prominence.
“In addition, a commitment to increased consultation going forward will ensure that we can continue to work towards a SORP that meets the evolving needs of all of its constituent readers and stakeholders.”