A working group within the Charities SORP Committee has recommended that reporting standards for small charities should be simplified.
The SORP Committee guides the development of the Charities Statement of Recommended Practice, which provides guidance on financial accounting and reporting for not-for-profit organisations. At present, it is thought that the SORP could be reformed ahead of its next renewal, which is planned for 2021.
In recent days, a working group within the Committee has said that incorporated charities with incomes below £250,000 should be allowed to prepare accounts on a receipts and payments basis.
This is compared to current rules, in which only unincorporated charities with incomes below a quarter of a million pounds can prepare accounts on receipts and payments basis.
If the committee’s recommendations were to be approved, it would mean around two thirds of all charities would be eligible to use the receipts and payments approach to financial reporting.
However, members of the committee warned that the reporting framework would have to be overhauled to present a “true and fair view” to avoid presenting a “misleading picture of longer-term financial sustainability”.
Under the receipts and payments framework, accounts are created using a simple form of accounting that summarises all money received and paid via the bank and in cash, by the charity, during its financial year.
The accounts must also be accompanied by three related documents, including a trustees’ annual report, a statement of assets and liabilities and an external scrutiny report, prepared by an independent examiner or auditor.
The main differences between receipts and payments accounts and SORP accounts are how transactions are presented. For example, payments for rent are displayed in the financial year in which the payment was processed, rather than the rent period it qualifies for, say, six months in advance.
Likewise, changes in the value of assets, such as investments, buildings and debtors are not included in the main accounts. This means the accounts will not include any amounts for depreciations, gifts in kind, bad debts or gains and losses on sales of investments or fixed assets.