Foundations support simplification of accounting rules for small charities

04 Jan 2021 News

A majority of foundations would like to see financial reporting simplified for small charities, according to a survey.

The survey of 36 funders, conducted by the Association of Charitable Foundations (ACF), Scottish Grantmakers and Philanthropy Ireland, also found that charity accounts were “central” to grantmaking decisions made by one in three foundations.

The findings are included in the report Survey of Charitable Funders’ Views of Accounts prepared under the Charities SORP, which is part of ongoing work into the future of reporting requirements.

Simplifications for smaller charities

Just under 60% of respondents agreed that they would “like to see more simplifications for smaller charities but within one overall SORP”, although only one in ten backed the idea of a whole new reporting system for small charities.

The SORP already allows some simpler rules for small charities with a turnover of under £500,000 a year.

Around half the grantmakers surveyed – 48% – agreed or strongly agreed that “accounts produced under charity SORP are unnecessarily complex for those who need to read them”. One in three respondents disagreed with this statement.

Stories and numbers

Asked what part of SORP accounts were most useful to foundations, the survey respondents gave the highest score to the inclusion of the Trustees’ Annual Report (TAR) alongside the accounts, which provides a narrative of the charity’s work to accompany the figures.

The next highest scores were given to the inclusion of a reserves policy in the TAR and an explanation of charities’ major sources of income, followed by details of staff costs.

Using the SORP to tackle inequality

One respondent, who is anonymised in the report, said that future changes to the SORP could help foundations understand the communities being served by the charities they fund.

Referring to “the inequalities highlighted by the Covid-19 pandemic”, they said: “A requirement within the new SORP for all charities […] to publish information about the people they serve and who they are run by (broken down by protected characteristics) would be helpful to us when it comes to targeting our resources."

They added: “This transparency would also promote accountability of all charities to the communities they serve as well as promoting public trust.”

'A vital tool'

Max Rutherford, the head of policy at ACF and a member of the SORP Committee, said: "It’s important to hear foundations’ views on whether charity accounts are easy to understand and digest, given that they are one of their primary audiences.

“Nearly every funding decision will be directly informed by a charity’s accounts, and so it’s essential that every charity has the right sort of guidance to enable it to prepare accounts that present a clear and accurate picture of its past, present and likely future.

“I’m sure the findings from this research will be of real interest to those involved in the process of reviewing the Charities SORP in the year ahead. The SORP is a vital tool, and considering how to make it less complex, particularly for small charities, will be a vital consideration.”

Professor Gareth Morgan, the treasurer of Scottish Grantmakers and a trustee of a small Scottish-based grant-making charity, said: "Almost all [respondents] said they make extensive use of the accounts of charities that apply to them for grants, but almost half called for simplifications to the SORP to make accounts easier to read, with many mentioning specific elements that could be clarified or removed."

The data was collected in October and November last year, from foundations which make more than 3,000 grants in total to charities every year.

The work is part of ongoing work looking at reforms to the SORP. The group said that it expects new SORP guidelines to be published in 2023-24.

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