Financial Reporting by Charities
Introduction and Contexts
There is a great variation in terms of the quality and range of information currently provided by charitable companies in their financial statements to the Companies Registration Office (CRO). Some charities comply with the minimum standards required under company law, some Irish charities go beyond the minimum, whilst some even comply with the Statement of Recommended Practice for Financial Reporting by Charities (SORP) standard, which is recommended best practice by the Accounting Standards Board (ASB)
When the Charities Act comes into effect, the annual accounts produced by incorporated charities for the CRO under the Companies Acts will be forwarded by the CRO to the new Charities Regulatory Authority. Such charities will not be required to provide additional accounts to the new Charity Regulator under the Charities Act.
There is a Ministerial commitment to consult on the content of the Annual Activity Report (submission of which will be mandatory for all charities) and on the Annual Statement of Accounts (which will be mandatory for non-incorporated charities).
“It is most likely that this will require charities to disclose some additional information in relation to their charitable activities and their finances."
The Minister has noted that: “it is most likely that this will require charities to disclose some additional information in relation to their charitable activities and their finances, through both the Annual Activity Report, and the Annual Statement of Accounts mechanisms..."
“...because charitable companies are exempted from the accounts provisions of the Charities Act, a method will have to be developed in the regulations to be prepared under the Charities Act to ensure that, for example, a medium sized incorporated charity ultimately provides to the new Authority the same level of financial and activity reporting as its non-incorporated counterpart..."
“…What this might mean in practice is that, for incorporated charities, the desired financial information might be furnished to the CRA through a combination of both the Annual Report produced under the Charities Act, and the financial statements produced under company law, whereas for non-company charities, the bulk of financial information will most likely be sought through the Annual Statement of Accounts in the format to be prescribed under the Charities Act..."
“...It wouldn’t be unreasonable to assume that the financial reporting arrangements to be introduced by the Accounting Standards Board (ASB) for public benefit entities in due course, following its public consultation process, will inform the financial reporting régime to be introduced under the Charities Act.”
In the meantime, to improve the general transparency and consistency of all financial reporting the ASB is proposing to converge UK Generally Accepted Accounting Practice (GAAP) - which applies in Ireland - with the International Financial Reporting Standards (IFRS) developed by the International Accounting Standards Board (IASB) that are now mandatory for publicly-quoted firms under EU law.
There is, however, an acknowledgement by the ASB that International Financial Reporting Standards “are not framed with public benefit entities in mind” so the ASB is currently consulting with the charities sector regarding the desirability of special financial reporting standards for charities.
The ASB has committed to consult further were it to be proposed to develop a public benefit entity standard and the Minister has stated that he “would envisage the charity regulators having a significant input were any further consultation process to be undertaken by the ASB on a public benefit standard.”
The ASB will consider the future need for a Statement of Recommended Practice for Financial Reporting by Charities (SORP) as part of developing it’s proposals.
The Wheel made a submission to the Accounting Standards Board consulation on financial reporting by public benefit entities (charities) and you can see the submission below.
Submission to the Accounting Standards Board consultation paper on The Future of UK GAAP - January 2010
Prepared by The Wheel – Ireland’s largest support and representative organisation for community, voluntary and charitable organisations.
Following on from the ASB information session held in Dublin on 12 January 2010 (hosted by the Department of Community, Rural and Gaeltacht Affairs and ICTR), The Wheel invited its members to consider Section 3 of the ASB consultation document regarding Financial Reporting for Public Benefit Entities.
Members present considered the following questions:
Q11. Do you agree with the ASB proposal to develop a public benefit entity standard?
In principal, members were of the view that the ASB should develop a public benefit entity standard based as closely as possible on the existing UK SORP for Financial Reporting by Charities.
There were a number of concerns that would need to be addressed before unqualified support could be given to a new standard leading to requirements that:
- Charities in Ireland must be centrally involved in developing, monitoring the implementation of, and reviewing any standard
- A mechanism would need to be found to exempt very small charities from the requirement to comply with a SORP-based standard (which does not currently apply in the Irish context)
- Transitional supports would need to be made available for many smaller charities to enable them to make the transition to applying a standard
- Concerns were also raised at the level of fees that could potentially be applied by accounting professionals if instructed to prepare accounts according to a new SORP-based standard.
Q12. If you agree with the proposal to develop a public benefit entity standard, should the standard cover all the requirements for preparing true-and-fair-view accounts?
All members agreed that the standard should cover all the requirements for preparing true-and-fair-view accounts (as the SORP currently does). This approach will facilitate trustees and managers of charities to come to a general understanding of the standard and to “take ownership” of their charity’s financial reporting. It would also facilitate the implementation of improved practice in management accounting by charities.