Helen Elliott

2 November 2016

Charity accounts and the new FRS102 SORP regulations

• SORP: back to basics

• Key changes

numbers end

trustees’ annual report

• Better annual reports

• Questions

Agenda

2

• Statement of Recommended Practice

Accounting standards take precedence - SORP

is an interpretation for charities

• Required for true & fair view

What is the SORP?

3

Why do we need a SORP?

Why has the SORP been changed?

5

Funds of a charity

6

GeneralUnrestricted, undesignated funds

RestrictedFunds have to be spent on specified purpose:• Restriction imposed by donor• Restricted funds may be

for a specified project,specific geographical area or raised in an appeal

DesignatedFunds earmarked by trustees to be used for particular purposes in the future

UnrestrictedFunds received for any purpose within your charitable objects:• General donations• General legacies• Self-generated income

New framework from 1 January 2016

7

•An option for non-company

charities with a gross income

of £250,000 or less

Receipts and

Payments

accounts

•Applies to all charities

preparing “accruals accounts”

•Statement of cash flows only

required of “larger charities”

FRS 102 and

the FRS 102

SORP

Larger charities will be those with gross income over £500,000

• Statement of cash flows not required

SORP update bulletin 1

• Simplified Trustees’ Annual Report

FRS 102 SORP para 1.9

• Option to use natural classifications in SOFA

FRS 102 SORP para 4.23

SORP concessions for smaller charities

8

• “Larger charities” meant those over audit threshold, SORP update bulletin 1 clarifies £500,000 income

• “Must, should and may”

• “This SORP requires” to distinguish where over and above standards

SORP terminology

9

Report income and expenditure in line with

activities reported in the trustees’ report

• How charity has used resources to further its

charitable aims for public benefit

• Trustees' report = objects, activities,

achievements, impact

• What are the key charitable activities?

Link trustees’ report and SoFA

10

• Income headings reduced and “plain English”:

Donations & legacies

Income from charitable activities – add sub-headings here

Other trading activities – may use sub-headings here too

Investment and other income

• Expenditure:

Expenditure on raising funds

Expenditure on charitable activities

Other expenditure

SOFA headings

11

• Income recognition - probable vs certain

• Fair values

Long term creditors to net present value

Property revaluations

Investment property

• Donated stock held for sale

• Holiday pay

• Multi-employer pension schemes

Changes to numbers

12

Recognition criteria are :

• Entitlement – control over right or access to economic

benefits has passed to the charity

• Measurement – the value can be measured reliably

• Probable – it is more likely than not that the economic

benefits associated with the transaction of gift will

flow to the charity

SORP 2015 – income recognition

13

• Circumstances of each legacy

• Portfolio approach permitted

• Entitlement Evidence gift left to the charity

Executors satisfied legacy not subject to claims

• Receipt probable Probate granted

Conditions of legacy met or within control

Executors established sufficient assets in estate to settle liabilities and pay legacy

• If notified post year end – accrue if executors’ decision made before year end

Legacies - considerations

14

• Remuneration policy

• Key management personnel

Aggregate employee benefits

Disclose who they are?

• Termination and redundancy costs

• Higher paid staff in bands over £60,000 still

required

New disclosures - remuneration

15

• Expenses reimbursed or paid to third parties

• Disclose expenses waived by trustees, unless

immaterial

• Disclose aggregate donations from related

parties (including trustees)

• Still disclose restricted donations from

trustees and name them

New disclosures – for trustees

16

• Reserves policy

• Lease commitments

• Disclosure of income from government

• Ex-gratia payments

• Going concern

Think about Plan A and Plan B

New disclosures – for all charities

17

• Describe principal risks and uncertainties

• Remuneration policy

• Social investment policy

• Financial effect of significant events

New disclosures for larger charities

18

• To help maintain confidence of funders and

other stakeholders

• Aim to avoid risk of unplanned closure

• Emphasis moved:

from justifying holding reserves

to justifying not holding reserves

• No correct level or range is right for all

• Monitor reserves and if OK all year

Reserves policy – updated guidance

19

What sort of charity?

Incom

e

Predictable

Unreliable

Flexible cost base

High committed costs

Adjust spend to fit

income

Danger zone

Regularly monitor income

Use reserves

20

• Key requirements

• Who is your audience?

• Good narrative reporting

• Good examples

Better annual reports

21

SORP requirements for all charities

•Objectives and activities

• Achievements and performance

• Financial review

• Structure, governance and management

• Reference and admin details

Comment on any uncertainties about charity’s ability to continue as a going concern

Reserves policy

Requirements for larger charities

• Plans for future periods

• Social investment

• Grant making

• Use of volunteers

• Impact reporting

• Performance measures

• Description of principal risks and uncertainties

• More on reserves

• Remuneration policy

Who is your audience?

Public/

beneficiaries

/staff

Donors/funders

Trustees & Management

Charity Commission

Performance/summary focus

Technical/compliance focus

Your Messages

• Financial information

• Major achievements, events & developments

• Future plans & what you would like/hope to

achieve in the future

• Strategic report

• Description of what you do & how you do it

& commentary on your performance

• Who you are - key personnel & trustees

What is good narrative reporting?

Answers five key questions

• What is the problem we are trying to address?

• What do we do to address it?

• What are we achieving?

• How do we know what we are achieving?

• What are we learning, and how can we improve?

Source NPC

What do we mean by impact?

Output Products, services or facilities thatresult from an organisation’s orproject’s activities.

Outcome The changes, benefits, learning orother effects that result from whatthe project or organisation makes,offers or provides.

Impact Broader or longer-term effects of aproject’s or organisation’s outputs,outcomes & activities.

Source - CFG Impact Reporting in the UK Charity Sector

Impact reporting- the challenge

• What timescale should a charity use?

• What are the associated costs?

• Does it really fit in the annual report?

• May have more value internally?

• Helpful to have more guidance?

Impact reporting – some practical tips

clearly communicate what you are aiming to

achieve & how you are doing

need to engage with different audiences

audience needs to understand the need or

problem your charity is trying to address

be BOLD

be balanced

use numbers & case studies

continuously strive to learn & improve

Helen Elliott

helen.elliott@sayervincent.co.uk

Sayer Vincent LLP

www.sayervincent.co.uk

@sayervincent

Questions?

30