Accounting and reporting guidance for charities - NICVA response

This new suite of guidance will help charity trustees, and anyone working with charities, to understand the new rules for the preparation and scrutiny of charity accounts, the annual report and the annual monitoring return. The Commission is also seeking views on the proposed Directions for independent examiners.

There are six documents in total, five pieces of draft guidance for consideration:

• ARR01 Charity reporting and accounting: overall summary
• ARR02 Charity reporting and accounting: the essentials
• ARR03 Receipts and payments accounts and the trustees’ annual report
• ARR04 Accruals accounts and the trustees’ annual report
• PBR1 Public benefit requirement guidance

And the sixth document is the overall consultation document which includes the proposed Directions for independent examiners.

This suite of guidance may seem like a lot however it may not be necessary for charities to read all of them, they can choose the guidance which is most relevant to them.  For example a charity which is also a company may only read the accruals accounts guidance, but if a charity was unsure about which guidance was most relevant then the overall summary will guide charities to the most relevant guidance.

All of the guidance documents are well structured and provide clear information, NICVA has just a few comments and suggestions for improvements as follows:

ARR01 Charity reporting and accounting: overall summary

The overall summary document includes useful flowcharts which will help charities easily identify if they fall under the interim reporting arrangements or the new full accounting and reporting regulations.  It also acts as a signposting guide to other relevant guidance. 

ARR02 Charity reporting and accounting: the essentials

This document gives a good detailed overview of all the new accounting and reporting requirements.  It will certainly be useful for those looking for the detail on all of the new requirements and prove to be a useful document for anyone advising charities or working with different types of charities.  Just a few comments:

• Page 9 under the definition of SORP, is it necessary to include that it’s issued by the Charity Commission for England and Wales and the Office of the Scottish Charity Regulator?Could potentially lead to a misunderstanding that it’s not relevant here in Northern Ireland.
• Page 10 definition of ‘connected person’ could include more detail.For example if an accountant is a trustee, can an accountant who is a colleague or employee in the trustee’s accountancy firm carry out the independent examination?
• Page 12 has an excellent table outlining very clearly which reporting periods and arrangements apply to different financial years of charities.
• Page 14 para 3.1states that “Charities that are not registered with the Charity Commission for Northern Ireland, or that are preparing accounts for a financial year that begins 1 January 2016, are not required to prepare their accounts in a particular way under charity law.” Charities have had to prepare them under the Charities Act (NI) 1964 which is stated in the paragraph that follows in the document.
• Page 22 states that “When determining whether your charity’s accounts require an independent examination or audit you must ensure you comply with any other relevant legislation, for example, the Companies Act.”Not sure if the companies act is a good example here as it will no longer provide for the external scrutiny of charitable company accounts now that the new accounting regulations are in place.For those charities under the interim arrangements do they still have to comply with the former charitable company external scrutiny requirements? ie The Companies Act 2006 (Commencement No. 6, Saving and Commencement Nos. 3 and 5 (Amendment) Order 2008 [2008 No. 674 (C. 26)].
• Page 33 last paragraph – “Section 388 provides that private companies must keep records for and public companies for at least 6 years from the date on which they are made”unsure of relevance of including the requirements for public companies given that they are not charities.

ARR03 Receipts and payments accounts and the trustees’ annual report

A good, clear comprehensive document which distinguishes very clearly between receipts and payments and accruals accounts.  Some comments and suggestions:

• An additional paragraph would be useful at the beginning to explain that income and expenditure accounts is the same as receipts and payment accounts.  This will be beneficial to the smaller charities that are familiar with using the term ‘income and expenditure’, otherwise there could be panic in thinking that they had to do something completely different from what they’re doing currently.  Include a question in the flow chart in figure one to ask “are you currently preparing income and expenditure accounts?”

• Figure 2 on Page 22 includes an example of receipts and payments accounts.  It would be useful to include a further example of a charity with no endowment funds and no restricted funds as very small charities may have difficulty identifying with this example as they currently may only have one column in their accounts but there’s five columns in the example provided.   Also it would be useful to include an example statement of assets and liabilities with the example if this is to be a legal requirement for this type of accounts.

• Figure 4 on Page 28 is a useful flowchart outlining the external scrutiny requirements.  Suggest that the type of scrutiny also includes the type of accounts they need to prepare.  For example, the second box asks “Has gross income exceeded £500,000 in the relevant financial year?” and if you answer yes, it takes you to the Audit box but it doesn’t say that accruals accounts are required.  Think this would be useful as it would clearly point out that they’re using the wrong guidance and need to use the Accruals guidance.   

• Page 33 section 7.1 third para states “An examiner cannot independently review their own work and so the person who is the charity’s book-keeper cannot be the charity’s examiner.”   It would be extremely useful to include that an examiner can however prepare the accounts and examine them provided that they haven’t been keeping the books throughout the year. 

ARR04 Accruals accounts and the trustees’ annual report

A comprehensive, clearly laid out piece of guidance to help those understand what’s expected with accruals accounts.  Some comments:

• Page 26 Figure 3 includes a useful flow chart outlining the external scrutiny requirements.  In the third question it asks “Have the trustees chosen to have the charity’s accounts audited?”  suggest including the words ‘members or’ before the word ‘trustees’ as quite often the members have the power to request an audit. 

PBR1 Public benefit requirement guidance

This will be a useful addition to the public benefit reporting statutory guidance, concentrating on the annual reporting for charities.  Just one query about the following sentence in the first paragraph under 5.1 “This means charity trustees must be able to show that they are aware of the guidance and they have taken it into account in making a decision where the guidance is relevant.”  Do they not need to adhere to the guidance which is much stronger than being aware of it.

At the consultation seminar that the Commission held in NICVA, there were some that thought that having separate public benefit guidance on the reporting was too much and that any relevant information should be included in both the receipts and payments and accruals guidance, which makes sense.    

The Directions for Independent Examiners

NICVA looks forward to examining the detailed guidance that has been prepared on the Directions for independent examiners. 

Consultation

The deadline for responses to the Charity Commission’s consultation are required no later than 5PM on 11 March 2016.