The development of the Charities Statement of Recommended Practice (SORP) is a continuous process. In October 2017 four working groups were set up by the SORP Committee to look at different key areas in the future of charity governance and reporting. The groups have each fed back on their findings throughout 2018 and the SORP Committee is due to consider how the recommendations are taken forward.
What are the groups and what progress have they made?
This working party focused on smaller charities in the sector (less than £250k income) and how to not only improve reporting but make it more focused in order to reduce the burden. The group presented its main findings and recommendations in June 2018.
- There was strong support for allowing incorporated charities with income less than £250,000 to use receipts and payments accounts. Almost two-thirds of the charitable companies in England and Wales could benefit. However, a change in the law would need to take place before it could be allowed.
- The SORP Committee discussions on this point felt that receipts and payments would still need additional disclosures to show a ‘true and fair’ view under the Companies Act.
- Reading between the lines it does not sound like there would be much benefit in the end – but that may be too pessimistic.
- The group recommended greater use of technology with a potential ‘Build your own SORP’ tool for charities to use to give a clear picture of their individual requirements. But there was no suggestion of who would fund this tool.
- The groups did not look at the content of the trustees’ report. Even though it’s recognised simplification would be needed in the future.
- Finally the group discussed the general difficulties in setting standards that are relevant and practical for smaller charities. The ultimate aim is to improve the quality of the accounts reporting in smaller charities, whilst understanding the limited resources at their disposal.
This group has suggested that there is a four-tier reporting structure in place for charities.
The largest charities would be reporting additional information and disclosure similar to how UK PLC companies report in their accounts. This idea is complex as it introduces even more thresholds and variety of reporting planned to be tailored to the needs of both users and preparers of the accounts. It was also acknowledged that the different thresholds in different jurisdictions in the UK and Ireland would not be aligned with these tiers as they all have different variations on size for independent examinations and audit – so life could become very complicated indeed. The group reported its findings in June 2018.
- The proposed four-tier structure would require detailed information gathering as to how many charities fit into each potential tier.
- The potential to use the current thresholds of the Companies Act was dismissed as these were not designed for the charity sector and may be impractical.
- The new thresholds would also bring added complications that would only be understood by professional advisers, with different thresholds operating across different jurisdictions (Scotland, England, Northern Ireland etc.)
- There was however a strong indication that different tiers of reporting did provide benefits to end users of the accounts, and improvements in clarity of reporting.
- One solution was a principle-based approach to the reporting between tiers and the level of transparency in each tier. Such principles could follow on from the International Integrated Reporting Councils ‘seven guiding principles’ framework. This was developed for corporate reporting but could be applied to charities.
- Fortunately for all the conclusion was for further consultation and information gathering to take place before moving forward with any new tiers.
This group is considering transparency in the sector, which is a key issue for many and reputational risks loom large in the background. What information is considered transparent, how is it identified in reporting, and is there any information missing from current requirements? This group reported in July 2018 with the following recommendations:
- The group consulted a wide range of views and tried to build a consensus around the different ideas presented to them by various stakeholders.
- The group recommended that a potential ‘key facts summary’ could be produced for charities with bullet points and headline data to give users of the accounts a clear picture of what the charity does and how it undertakes those activities. But who decides what the key facts for each charity are? The possibilities could be very different from one charity to another.
- The groups suggested the key facts summary would include areas that were previously included on the summary information return (SIR), withdrawn by the Commission. The main difference would be that the key facts would be included in all charity accounts within the Trustees report. Yet another page of reporting to add?
- In addition, there would be a new ‘roadmap’ after the key facts summary that would direct readers where to find further information – with charities free to choose what to include here. This recommendation aims to make the charity report clearer and easier for readers to navigate.
- These recommendations were considered against those previously highlighted by the smaller charities and tiered reporting groups above– with a potential additional burden that would need to be carefully considered.
- Finally, the group noted that use of technology and digital advances have changed the landscape on reporting practices. Any new advances in technology should be considered for future SORP guidance – this is a rapidly changing area for charities and recent developments with data protection and GDPR are just the beginning.
Finally, the governance group which assessed how the sector and charities are complying and addressing the new governance code reported its findings in October 2018.
- Revisions to module 1 of the SORP were recommended to reflect recent updates in the charity governance code and the sector in general. In addition, greater clarity in terminology should be added.
- The group noted that increasing the number of specific areas of reporting would potentially create a need for more supplementary guidance, and potentially increase the length of annual reports. More complexity was considered contrary to the aims of any future SORP. The dilemma was does this desire for simplified reports contradict transparency findings?
- A number of areas could potentially be ‘signposted’ in future annual reports as to where to find supplementary publications or information such as the charity website. This could reduce the length of reports – but then add to the burden in other areas such as the website.
- Any future SORP guidance should have an increased focus on risk, and for charities to focus on reporting their specific risks rather than following SORP mandated topics.
- The group raised the potential removal of the split in module 1 between small and large charities – but felt that at present the language and guidance was not clear enough to be easy to follow for all charities.
- More information should be presented on how trustees evaluated their own effectiveness, and any actions taken – this is controversial, and raises the questions of who defines effectiveness? Would this put people off becoming trustees?
- The frequency of trustee meetings and relevant attendance could be added to future requirements.
- The average number of staff calculation has been misunderstood in some cases and in many cases is inconsistent among charities. UK company law should be the basis.
- The group also recommended a review of the salary banding disclosure of salaries above £60,000 with a potential change to the starting point.
The working parties have now all reported back to the SORP committee and all four regulators will meet to consider which actions and recommendations to take from the exercise.
Although it’s unlikely that all recommendations will be accepted in detail, what is clear is that future change is on the way and charities should keep a close eye on upcoming developments and more importantly consultations so that they can feed their thoughts into the mix. The group’s workings raise a number of questions as to future SORP – and what it actually is that the various stakeholders really want from reporting in the future.
This article was written by Charity Specialist Michael Cooper-Davis. If you have any questions regarding this article you can contact Michael using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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