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Study considers global charity reporting rules

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26th Sep 2013
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Charities receive billions of pounds in donations each year but their rules vary. This can make it hard for governments, businesses and individual donors to check how their money is spent and compare the performance of charities.

In the UK, charities use accounting guidelines called “statement of recommended practice” (SORP), which explain how international accounting and financial reporting rules can be adapted for charities.

One of the main accounting tasks for charities is accounting for “restricted donations” when donors specify what their money should be spent on.

Wouldn’t it make sense for charities to use the same international financial reporting standards? This is one of the questions being researched by the five main accountancy institutes.

The institutes (ICAEW, ACCA, ICAS, CIPFA and Chartered Accountants Ireland) have appointed Sheffield Hallam University to research whether an international “financial reporting framework”, guidance or standard(s) for the not-for-profit sector.

The research will published in the first quarter of 2014.

Different accounting standards used by not-for-profit organisations in different countries can make it hard for big donors such as the World Bank or the European Commission to compare accounts of not-for-profit organisations, said professor Gareth Morgan of Sheffield Hallam University.

“In some countries large NGOs [non-governmental organisations] can do their accounts on a cash basis rather than accruals,” he said.

But trying to impose financial reporting standards on charities would not work, due to the cumbersome process for developing new standards and differences between countries’ legal systems, said Stella Fearnley, professor in accounting at Bournemouth University.

She said that international financial reporting standards were a “mess”. The idea that they could be extended to the not-for-profit sector was risible, she said.

The Charities Commission is consulting on draft new accounting guidelines for charities.

In March, the Financial Reporting Council announced financial reporting standard, FRS102, which will form the basis of financial reporting for accounting periods starting on or after 1 January 2015. It is the first financial reporting standard to address some of accounting needs of charities and ‘public benefit entities’.

In the UK, there are an estimated 900,000 civil society organisations with over £220bn of assets, according to the NCVO Civil Society Almanac, 2012.

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