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Charity Commission clarifies new SORPs

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2nd Nov 2015
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In spite of the warm welcome for those attending SWAT’s first annual charities convention, there was a certain amount of apprehension about the introduction of FRSSE and FRS 102 SORPs.

In recent months there has been confusion around which SORP charities should opt for, how charities know which SORP applies to them, what dates it applies from and to, and some of the considerations surrounding the FRSSE SORP.

Nigel Davies, head of accountancy services at the Charity Commission delivered an update on SORP and reporting procedures and gave the conference an overview of the two SORPs.

The new FRS 102 SORP requires all charities, irrespective of size, to prepare a statement of cash flows.

The main benefits of the FRSSE SORP to smaller entities are not having to do a cash flow statement and less disclosure. However, with the FRSSE SORP being withdrawn there is a likelihood that the majority of charities will choose to adopt the full FRS 102 SORP from the get go.

Both SORPs are in modular ‘chapter’ form, allowing charities to skip chapters that weren’t relevant to end up with a condensed SORP version. Although the time-saving aspect of this was initially welcomed, experts warned that there is a danger that trustees or finance professionals might not necessarily know whether something could be pertinent or not, leading to incompliance.

Both SORPs also use the terms ‘must’, ‘should’ and ‘may’, and while presenters at the convention agreed on the definition of ‘must’ and ‘may’, there was a certain amount of debate over the definition of ‘should’, which Davies defined as best practice while BDO’s Don Bawtree saw it more as ‘must’.

Davies also pointed charities in the direction of a dedicated site: charitysorp.org, which provides application guidance for charity accounting.

Enhanced annual reporting requirements were also discussed. Greater disclosure is now required of larger charities in the trustees’ annual report, and both Davies and Bawtree called for transparency and disclosure from all charitable organisations as a way to win back public trust.

There has been a lot of media attention given to higher paid employees in charities, and the fact that larger organisations will be required to disclose who’s being paid what keeps the spotlight on executive staff remuneration within charities.

The 2015 SORP also has an increased focus on risk and strategy, and expects charities to provide more specific information on reserves.

‘Larger’ charities with a gross income of more than £500,000 are also expected to publish an annual statement explaining their ethos and policy on remuneration, explain how this impacts the delivery of their charitable purpose and report the actual remuneration, role and names of its highest paid staff. Afternoon speaker Don Bawtree recognised that this was a difficult situation for larger charities: “disclose it and get criticised, don’t disclose and be punished”.

One announcement hot off the press was HMRC’s new Gift Aid Declarations for one-off donationsmultiple donations and sponsored events. Reacting to the news, Don Bawtree urged delegates to make sure old stock of gift aid declarations were destroyed or deleted.

It has always seemed ironic that, due to its diverse nature, charity accounting is one of the most complex regulatory areas when often trustees or accountants are giving up their time and knowledge for free or at a heavily discounted rate.

Given the recent press coverage of how charities are run and how they spend their money, many trustees and charity accountants also felt that there had been a shift in public perception – one charity FD who spoke with AccountingWEB has already forecast a 10% drop in income based on the fallout from the sector.

However, no one in the room seemed particularly downhearted by the changes or the current climate, and went away armed with the knowledge that will allow them to continue helping their chosen charities around the country.

***

With thanks to Jen Gerrard of Gerrard Financial Consulting for providing technical advice.

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By RNRfinance
04th Nov 2015 13:50

Cash flow statements for charities - small entities-FRS102
Section 14.1 of the SORP advises that you should refer to section 7 of FRS102. Para 7.1B of Frs102 exempts small entities from a cash flow statement. Why therefore are you saying that all charities regardless of size must prepare a cash flow statement?

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