Reporting across the charitable sector is constrained on the one hand through the Charity Commission and its SORP, and on the other through general accounting standards – the beloved FRS102. What is needed externally centres very much upon size of operation… so here goes:
Type of account
Charity accounts may be prepared either on the receipts and payments basis or the accruals basis. Which of these is needed will depend on the income of the charity and whether or not it has been set up as a company.
Receipts and payments
This is the simpler of the two methods of preparation and may be adopted where a non-company charity has a gross income of £250,000 or less during the year. It consists of an account summarising all money received and paid out by the charity in the financial year, and a statement giving details of its assets and liabilities at the end of the year. Charitable companies are not allowed by company law to adopt this method.
Non-company charities with gross income of over £250,000 during the financial year, and all charitable companies must prepare their accounts on the accruals basis in accordance with the applicable Statement of Recommended Practice (SORP). They contain a balance sheet, a statement of financial activities and explanatory notes. These accounts are required in accountancy terms to show a ‘true and fair view’.
Charitable Incorporated Organisations
CIOs may opt to prepare their accounts on a receipts and payments basis if their gross income is less than £250,000.
Audit or independent examination?
Except for NHS charities, only those charities with gross income of more than £25,000 in their financial year are required to have their accounts independently examined or audited – below that threshold, an external scrutiny of accounts is only needed if it is required by the charity’s governing document.
Precisely what type of scrutiny is needed depends on the income and assets of the charity. Broadly speaking, an independent examination is needed if gross income is between £25,000 and £1 million and an audit is needed where the gross income exceeds £1 million. An audit will also be needed if total assets (before liabilities) exceed £3.26 million, and the charity’s gross income is more than £250,000, or if the governing document demands so. This flowchart helps profile the requirement.
How to select your examiner
An independent examiner as described in the Charities Act is ‘an independent person who is reasonably believed by the charity trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts’. Once a charity’s gross income exceeds £250,000, and for financial years ending on or after 31 March 2015, the examiner must be a person who is a member of one of the following bodies listed in the Charities Act and should be allowed by the rules of that body to undertake the role of independent examiner:
- Institute of Chartered Accountants in England and Wales
- Institute of Chartered Accountants of Scotland
- Institute of Chartered Accountants in Ireland
- Association of Chartered Certified Accountants
- Association of Authorised Public Accountants
- Association of Accounting Technicians
- Association of International Accountants
- Chartered Institute of Management Accountants
- Institute of Chartered Secretaries and Administrators
- Chartered Institute of Public Finance and Accountancy
- Fellow of the Association of Charity Independent Examiners
- Institute of Financial Accountants
- Certified Public Accountants Association
Where an audit is required then the charity will need to look to regulated bodies and ReesRussell has the relevant authority to act.
in addition to the numbers the words are very important and the content of the Trustees’ Report is stipulated by the Charity Commission, again by reference to size. The report will form part of the accounts that are filed at Companies House (if appropriate) and with the Commission. When filing at the Commission it is usual to append alongside the other filing requirement not to be overlooked – the Annual Return. The Annual Return makes other declarations
The following table will help profile exactly what is required
|Gross income thresholds||Gross income and gross assets|
|Accounting Requirements||£5k||£10k||£25k||£250k||Gross income £250k- £1m
and gross assets under £3.26m
gross income above £1m
or gross assets above £3.26m and income above £250,000
|Type of Accounts||Receipts and payments.
May choose accruals
|Scrutiny of Accounts||No independent examination of accounts or full audit required,
unless stated in constitution
|Either independent examination of accounts or full audit,
unless specified in constitution.
If gross assets are below £3.26m an independent examination is sufficient.
|Filing of Trustees’ Annual Report and Accounts||
Complete and file with Charity Commission within 10 months of end of financial year