COVID-19 and the annual accounts

It is not surprising that given its importance and widespread impact, COVID-19 will feature in church and charity accounts for the foreseeable future. Whilst it is important, we do believe that this issue should not dominate the accounts, and neither should it overshadow the positive work and impact that churches are having in their local communities, perhaps even as a result of the pandemic.

For most accounts, there are there are three areas to consider. The Trustees’ Annual Report (TAR); post-balance sheet events (PBSE); and in extreme circumstances ‘going concern’.

The Trustees Annual Report (TAR)

For accruals accounts, the SORP committee is expecting trustees to consider the impact on the financial statements as charities’ circumstances and activities adapt in the light of their responses to the virus. Although not a formal requirement for receipts and payments accounts, it may appear strange if such a far reaching event did not warrant a mention.

The TAR should include a COVID section briefly covering the impact on:

• The organisation’s activities – how have activities adapted in the light of the pandemic (these may be considered to be positive)
• Staff, volunteers and beneficiaries – what the impact has been on these groups
• Finances and reserves – in particular the TAR should speak about the impact that measures taken might have on the charity’s reserves

Where the impact is expected to be extensive, trustees might want to explain more about the financial impact and the measures being taken (or available) to mitigate that impact and so protect the charity. Where the impact is expected to be minimal, say so.

In the midst of what might seem to be a negative story, there remains a place for the positive. Has the charity seen increased levels of giving? Have new initiatives or expressions developed as a result of changing how things are done? What changes may be continued once the pandemic is over?

Post-balance sheet events (PBSE)

PBSE are those events that come to light after the balance sheet date but will have relevance to the reader of the accounts. They come in two forms:

• Adjusting events are those that result in adjustments to the balance sheet because they shed light on conditions that existed at the balance sheet date by providing more information about the values of the charity’s assets and liabilities at the year-end, or by revealing the existence of previously unknown liabilities.

• Non-adjusting events – these are events and decisions that do not affect the year-end balance sheet (in the main because the conditions did not exist at the balance sheet date) but because they are significant, still need be disclosed in the notes to the accounts to provide relevant and useful information to readers. Where known, the financial impact of a non-adjusting event should be disclosed.

As we move into year-ends dated 31 March 2020 or later, trustees should be prepared to include PBSE of both types. Examples of adjusting and non-adjusting PBSE can be found in our expanded blog COVID 19 and the Annual Accounts.

Going concern

Finally, where COVID has so badly impacted an organisation to the extent that it might not be able to continue into the future, the trustees must consider whether the organisation remains a ‘going concern’. Where there are doubts, these should be expressed in the TAR together with the actions taken to mitigate them. In the most severe (very rare) cases it may be that the accounts should be compiled on a different basis. 

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COVID-19 and the Annual Accounts