Charities SORP governance review 2018/19

By Stephen Mathews | 25 September 2019

 

The Charity SORP has been with us for around 35 years, setting out the reporting requirements for charities that report on the accruals basis. In general, it applies to all charities that are structured as companies, all charities with gross income above £250,000 and any other charity that chooses or is required to follow accruals accounting.

 

Recently, a review panel made up of members of the charity regulators in the UK and the Republic of Ireland has looked again at the SORP and, following some sweeping observations, has made a number of recommendations which it feels will make the SORP ‘fit for purpose’ for the next quarter century. Whilst we welcome the direction of travel, we are yet to be convinced that the panel’s observations go far enough.

 

Simpler reporting for small charities

 

Our most significant issue is the complexity (and associated cost) that following SORP brings to smaller charities. One of the panel’s key recommendations was ‘greater simplification of reporting requirements for smaller charities and a better representation of small charities within the SORP Committee membership’. Whilst this provides some recognition of the difficulties faced by smaller charities, we would like to see a more far-reaching approach.

 

Increasing the turnover limit (currently £250,000) for charities wishing to report under the receipts and payments (R&P) basis – with some added safeguards – would be a welcome move forward. Perhaps the increase could go as far as aligning it with the audit threshold. Whilst it is fair to say that the R&P basis for producing accounts is not always favoured by professional analysts and charity treasurers, its much closer correlation with a charity’s cash flow makes this form of reporting far easier to understand for charity members and other users of the accounts.

 

Somewhat ironically, we feel that much of the additional disclosure required under the SORP actually serves to confuse rather than enlighten most users of small charity reports. By reducing disclosure in some areas and placing an emphasis on the more important issues, users may be able to get a better overall picture of what is happening inside the charity. Currently many users simply cannot see the wood for the trees.

 

Highlight the key data

 

Users of small charity reports, particularly those funded largely by donations, are likely to focus on key spending areas. What proportion of income is spent on the charity’s primary purpose? Are salary levels reasonable? How much is spent on back office, fixed assets or other infrastructure costs? How are reserves calculated and why are they held?

 

We feel that if smaller charities in particular could provide a more limited focus on key data, this would serve to increase the level of understanding amongst report users, which must surely remain the primary purpose of any report.

 

The way forward

 

The panel has acknowledged that simplification for smaller charities is necessary. It has recognised that the SORP is ‘technically sound in applying standards’ but that a change of emphasis is required if reports and accounts are going to meet the needs of users. It has recommended that the committee responsible for revising the SORP requires rebalancing to reflect the breadth and context of the sector, to engage with a wider group of stakeholders and to focus on public benefit.

 

We wait to see what the regulators will do with the panel’s recommendations, but remain concerned that even if accepted in full, they will not go far enough, leaving smaller charities to continue grappling with reporting complexity and users of small charity accounts largely in the dark.

Posted by Stephen Mathews
 
Stephen is a Senior Consultant at Stewardship and has spent over 25 years in the accountancy profession. Stephen is a trustee for a number of small Christian charities and has been involved in various church leadership roles over 20 years.

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