Charity Finance Group responds to consultation on new financial reporting guidance for charities

4th November 2013

Charity Finance Group (CFG) today submitted comments on new financial reporting guidance for charities. The Charity ‘Statement of Recommended Practice’ (SORP) is the principal document informing charities on how they should report income, spending and activities to the general public. The Charities SORP has not been updated since 2005 and the new version had to incorporate major changes in the accounting and reporting framework for the UK and Ireland.

Jane Tully, head of policy and public affairs at CFG, said: “The sector has entered a new era. The economic climate has changed and charities are adapting to different financial pressures, high demand, new innovations and financing mechanisms, and increased scrutiny over their spending.

“We want charities to explain in simple and non-bureaucratic terms, what they do, why they do it and what they have achieved, providing context to the accounts; the SORP should be an enabler for this. We think that the new easier to use format does mostly achieve this. CFG however, has proposed changes on legacies, performance reporting and salary disclosures. It’s important these are implemented to ensure that charities are disclosing information which is truly useful to the user of the accounts. With charity regulation and accountability under the spotlight, it’s essential that the reporting framework for charities is fit for purpose.”

Rui Domingues, CFG member, Chair of CFG’s Technical Accounting Forum and Director of Finance and ICT at Friends of the Elderly, said: “The consultation put a number of potential new disclosures out for discussion. Ideas included disclosing the job title and salary for the highest earner in the charity, something many do already. It’s important that charities are transparent on expenditure but it is critical that such disclosures are not put in place as a knee-jerk reaction and are researched so as to ensure genuine improvements in decision making and transparency. We have suggested strengthening current requirements to disclose the numbers of staff within income bands, and explaining of the remuneration policy in the annual report in order to improve understanding of staff costs.”


Notes to editors:

1. Charity Finance Group; inspiring the development of a financially confident, dynamic and trustworthy charity sector. Charity Finance Group works with finance managers to enable them to give the essential leadership on finance strategy and management that their charities need; promoting best practice in charity finance, driving up standards, campaigning for a better operating environment and ensuring every pound given to charity works harder - it’s essential to maintain the trust of charity donors. CFG has more than 2,200 members, all senior finance professionals working in the sector and collectively our members are responsible for the management of over £19bn in charitable funds.

2. CFG, representing finance professionals in the UK charity sector, estimates that over 250 of its members actively contributed to their consultation response. Members have engaged through a range of events, surveys and opportunities for written comment. CFG’s ‘Technical Accounting Forum’ was responsible for drafting the submission.

3. Please see the full CFG response to the Charities SORP exposure draft

4. Key changes suggested in CFG’s response:

  • It is in the best interests of the sector as a whole to maintain the option to apply the FRSSE and to cover it in the new SORP. To remove this option would present unnecessary burden to many small charities likely to follow the FRSSE for the time being.
  • The guidance on performance reporting is far too complex and prescriptive. CFG has proposed alternative wording to aid understanding and to simplify the requirements.
  • In order that those using the accounts to find information on staff pay are able to understand the full context and reasoning, CFG would recommend that larger charities are advised to explain their remuneration policy in their TAR. CFG disagrees with the proposal to require charities to disclose the job title and pay of the highest paid member of staff. The current approach, where charities explain how many staff are within prescribed income bands over £60,000, provides detailed information on the distribution of pay across the organisation which is much more useful.
  • CFG recommends that for accounting purposes the SORP refers only to normal investment and Programme Related Investment (PRI), with the Social Investment module focussing on treatment of PRI. This will mean reducing the explanation provided on Mixed Motive Investments (MMI).
  • There is inconsistent treatment of legacies across the sector; however, it is our view that this is inevitable if charities of vastly different sizes and with different sized legacy portfolios are to be confident that they are providing a true and fair view. We therefore propose that the SORP remove some of the more detailed guidance and that judgement based on principles is used to determine when legacy income is recognised.
    CFG opposes proposals to require grant makers to list all grants made in the notes to the accounts.

5. Further explanation on these points is available in our response; or for more information please contact 0207 250 8347

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