If you are in the process of compiling your Annual Report and Accounts (particularly on an accruals basis) then COVID-19 can’t be ignored. This is partly about what is legally required but also about what people want to know. References to COVID-19 will range from the fleeting, through considering possible post balance sheet events, right up to being the cause threatening whether your church or charity can continue.
Our resource 'COVID-19 and the Annual Accounts' explores three areas that trustees might want to consider when completing the Annual Report and Accounts.
1. The Trustees Annual Report
The SORP Committee has suggested a number of specific matters (see here) that it believes trustees should consider including in their reports. These include the impact that restrictions imposed to slow the spread of the virus have had on the organisation’s activities; the impact that these restrictions have had on staff, volunteers and beneficiaries; and the impact that dealing with the virus may have on an organisation’s reserves policy.
2. Post-Balance Sheet Events
COVID-19 could be the cause of either an adjusting, or a non-adjusting post-balance sheet event. Whether adjusting or non-adjusting is largely determined by the date that the accounts are drawn up to in relation to the existence of the virus.
Accounts drawn up to periods ending before 31 December 2019 are highly unlikely to have a COVID-19 related adjusting event. These accounts may suffer from a COVID-19 related impact, but as the conditions leading to the event were not in existence at the period end (the virus was only widely circulating in 2020) it will not be an adjusting event. Accounts drawn up for periods ending during 2020 are far more likely to have COVID-19 related adjusting post balance sheet events as the conditions causing the event were in existence at the period end.
Non-adjusting events are significant events which come to lights after the accounting period-end and that require disclosure in the accounts to provide relevant and useful information to the reader but that do not require the accounts to be adjusted. Generally, this is because the conditions causing the event were not in existence at the period-end.
Examples of both types of event are included in our resource linked to above.
3. Going Concern
Trustees are required to consider “going concern” for a period of at least 12 months from the date that the Annual Accounts are approved (not from the period-end date). Where there is significant going concern uncertainty, this should be explained in the Trustees’ Annual Report together with measures being taken to address those uncertainties. In extreme cases, if the trustees do not consider that the charity will be able to continue, the accounts should be drawn up on a different basis.
Going concern will only become an issue if a church or charity’s financial situation deteriorates, or is projected to deteriorate, to such an extent that there is a significant and real risk that the organisation will not be able to continue. Going concern is not about whether an organisation will continue in the same way as before.
Our updated briefing paper 'Churches and the issue of going concern' explores going concern in more detail in light of COVID-19.