Current Issues in Charity Accounting

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Current Issues in Charity Accounting
Janet Slade Accountancy Policy Team
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Current Issues

• SORP Committee- stakeholder research
• Public Benefit
• Public Benefit Reviews
• Public Benefit reporting
• Charitable Incorporated Organisations
• Whistleblowing and Serious Incident reporting

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Other Issues

• Threshold Review
• Excepted and Exempt Charities
• Charity Tribunal

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SORP Committee thinking

• In preparing for a future SORP the Committee is
  carrying out initial research
• Forum in April 2008 shared the main challenges
  and set the scene
• Roundtables to take the conversation deeper and
  hear from you, the Stakeholders
• Preparers, auditors and examiners
• Funders and financial supporters, and analysts

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Whats to debate (1)?

• CAPE Review of public benefit SORPs
• Structure of primary statements the SoFA
• Designated funds
• Capital grants
• Multi-period funding
• Narrative reporting
• Combinations and consolidations

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Whats to debate(2)?

• The content and form of reporting
• How reporting is best focussed
• Whose needs it should meet
• What the annual report should say
• What the accounts should say
• To what level of detail

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SORP challenges

• UK GAAP is changing to converge with IFRS
• The need to maintain public confidence
• Growing expectations of what charities can do
• Growing demands for accountability and
  transparency
• Smaller charities desire simpler reporting

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What the roundtables have been doing

• To hear the views of all stakeholders
• Looking at questions about the report and the
  accounts and debating them
• A questionnaire for all participants to complete
• A feedback form to set down any other things
  things that matter to stakeholders

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Thinking about the annual report

• The story is told from objects- aims-
  activities-achievements- results. Does it work,
  if not how should it be changed?
• The report includes governance disclosures who
  the trustees are, policies, advisers. Is this
  useful?
• Should SORP shape sector practice eg risk,
  ethical investments, trustee induction or is this
  best left to sector preference?
• Should the focus stay with stewardship or should
  it switch to looking forward?
• Who are your stakeholders and what matters to
  them?

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Thinking about the accounts and notes

• Is the terminology in the SoFA right?
• What about the columns, should restricted funds
  just be in the notes?
• Can the SoFA be simplified, if so how?
• On the balance sheet should designated funds be
  shown?
• Are accounting policy disclosures useful?
• Is the level of detail in the notes about right
  or too much?
• How could the accounts be made easier for smaller
  charities?
• In conclusion is SORP a good thing?

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What I would like today

• Please complete the questionnaire.
• Fill in the feed back form re any burning issues.
• Attend one of the stakeholder round table events
  if you want to discuss things further.

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Future dates for Round Table events

• Wales Council for Voluntary Action
• 20th February 2009 Cardiff
• 10th March 2009 Rhyl

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Future dates for Round Table events

• CFDG- 17th February Leeds (info_at_cfdg.org.uk)
• ICAEW/ACCA
• 2nd February 2009 London
• 5th February 2009 Leeds
• 12th February 2009 Newcastle
• Consultation closes 31st March 2009

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Public benefit

• To be charitable, a purpose must also be for
  public benefit
• General guidance January 2008
• CC consulted on sub sector guidance
• Trustees to have regard to the guidance

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Public benefit

• Principle 1
• There must be an identifiable benefit or benefits
• It must be clear what the benefits are
• The benefits must be related to the aims
• Benefits must be balanced against any detriment
  or harm

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Public benefit

• Principle 2
• The benefit must be to the public or a section
  of the public
• The beneficiaries must be appropriate to the aims
• Where the benefit is to a section of the public,
  the opportunity to benefit must not be
  unreasonably restricted
• People in poverty must not be excluded from the
  opportunity to benefit
• Any private benefits must be incidental

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Public benefit

• Public Benefit Assessments
• Initial round of assessments on existing
  charities.
• Assessment on registration for new charities

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Public benefit

• Explicit public benefit reporting in trustees
  annual report for years beginning on or after 1
  April 2008

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Charitable Incorporated Organisations

• New form of charity
• Not subject to company law
• Governed by charity law
• Draft Regulations to be consulted upon

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Charitable Incorporated Organisations

• The consultation closed on 10th December 2008,
  but OTS decided to be open to replies until the
  end of the year.
• Just under 100 replies received

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Whistleblowing/SI Reporting

• Serious Incident Reporting
• Duty of Auditors to report Matters of Material
  Significance to The Charity Commission/OSCR
• Duty of Independent Examiners to report matters
  of Material significance to The Charity
  Commission/OSCR

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New Whistle-blowing Duties

• Matters suggesting dishonesty or fraud involving
  a significant loss of, or a major risk to,
  charitable funds or assets
• Failure(s) of internal controls, including
  failure(s) in charity governance, that resulted
  in a significant loss or misappropriation of
  charitable funds, or which leads to significant
  charitable funds being put at major risk

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New Whistle-blowing Duties

• Matters leading to the knowledge or suspicion
  that the charity or charitable funds have been
  used in money laundering or such funds are the
  proceeds of serious organised crime or that the
  charity is a conduit for criminal activity

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New Whistle-blowing Duties

• Matters leading to the belief or suspicion that
  the charity, its trustees, employees or assets
  have been involved in or used to support
  terrorism or proscribed organisations in the UK
  or outside the UK

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New Whistle-blowing Duties

• Evidence suggesting that in the way the charity
  carries out its work relating to the care and
  welfare of beneficiaries, the charitys
  beneficiaries have been or were put at
  significant risk of abuse or mistreatment

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New Whistle-blowing Duties

• Significant or recurring breach(es )of either a
  legislative requirement or of the charities
  trusts
• A deliberate or significant breach of an order
  made under the 1993 Act prohibiting a particular
  transaction or granting consent on particular
  terms involving significant charitable assets or
  liabilities

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New Whistle-blowing Duties

• And
• The notification on ceasing to hold office or
  resigning from office, of those matters reported
  to trustees

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New Whistle-blowing Duties

• AND
• If the charity is a cross border charity you may
  need to whistleblow to more than one regulator.

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New Whistleblowing Duty

• Whistleblowing_at_.charitycommission.gov.uk

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Threshold Review

• UNCHANGED
• Compulsory registration with Charity Commission
• Annual return to Commission
• Preparing a Trustees annual report
• Audit Threshold
• Independent examiner to be qualified

• Income over 5000 per annum
• Income over 10,000 per annum
• All registered charities
• Income over 500,000
• Income over 250,000 and under 500,000

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Threshold Review

• Unchanged
• Requirement to refer to registered status on
  documents
• Charities ability to spend capital, transfer
  property and modify powers

• Income over 10,000 per annum

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Threshold Review

• Increased
• Submitting annual report and accounts to the
  Commission
• Income over 100,000 must have audit if assets
  over 2.8m
• Must have an external scrutiny

• Income over 25,000 per annum
• Income over 250,000 must have audit if assets
  over 3.26m
• Income over 25,000 per annum.

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Threshold Review

• Increased
• Preparation of accruals accounts by non company
  charities
• Cost of proving right to title of rent charge.

• Only required if Income over 250,000 per annum
• If charge released under 1000 charity can
  recover costs from other party

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Threshold Review

• Increased
• Definition of professional fundraiser
• Qualified right to refund of donations to
  broadcast appeals

• An individual who receives more than 1000 per
  annum or 10 per day.
• Applies to donations of 100 or more.

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Charity audit

• Charity specific opinion
• Company audit a charitable company is not small
  (def per Companies Act)
• PN11
• An extensive duty to report to the regulator
  (non-company only prior to 1 April 2008)

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Independent examination

• Charity specific
• Much more than an audit exemption report
• But not an audit
• A form of negative assurance
• Must follow the 12 Directions (CC63a) financial
  years beginning prior to 1 April 2008
• Must follow the 10 Directions (CC31) financial
  years beginning on or after 1 April 2008
• Report format set out by 2008 Charities (Accounts
  and Reports) regulations
• New duty to report to the regulator from 1 April
  2008

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Scrutiny arrangements

• Non-company charities financial years starting on
  or after 27 February 2007 and all charities for
  financial years beginning on or after 1 April
  2008
• Audit if income gt 100,000 and assets gt 2.8m or
  income gt 500,000
• Independent examination 10,000 to 500,000
• No scrutiny if under 10,000

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Scrutiny arrangements

• Separate regimes company and non-company (prior
  to 1 April 2008)
• Companies wef 27 February 2007
• Audit if assets gt 2.8m or income gt 500,000
• Audit exemption report 90,000 to 500,000
• No scrutiny if under 90,000
• Separate company thresholds cease for years
  beginning on or after 1 April 2008

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Excepted and Exempt Charities

• Excepted charities Registration where income is
  above 100,000
• Exempt charities regulation by principle
  regulator or registration( where income is above
  100,000)

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Major changes

• Charity Tribunal
• (PO Box 6987, Leicester LE1 6ZX. 0845 355
  5155
• www.charity.tribunals.gov.uk)

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Further Information

• www.charitycommission.gov.uk