Accounting regulations for charities

Legislation

New accounting and reporting regulations came into effect on 1 January 2016 which affects all charities registered with the Charity Commission for Northern Ireland (CCNI).

While the Charities Act (NI) 2008 provides the accounting and reporting framework for charities it has taken further secondary legislation to bring this section into operation along with the additional detail that was required. The Charities (Accounts and Reports) Regulations (Northern Ireland) 2015 and The Charities Act 2008 (Substitution of Sums) Order (Northern Ireland) 2015  provide the required detail for the preparation and scrutiny of charity accounts as well as the content of the annual report.

The regulations apply to all charities registered with CCNI with a financial year on or after the 1 January 2016, however the Charity Commission is strongly recommending that as a matter of good practice all charitable organisations should apply the full accounting and reporting regulations to the preparation of their accounts and reports.

The Charity Commission has published a suite of guidance which will help anyone involved with charities, to understand the new rules for the preparation and scrutiny of charity accounts, the annual report and the annual monitoring return. The overall summary document includes useful flowcharts which will help charities easily identify what they have to do now.

Preparation of charity accounts   

All charities have to prepare their accounts on either the accruals basis or the receipts and payments basis:

Accruals - Fully accrued accounts allocate the costs or income of a particular activity according to when the liability is incurred or when there is entitlement or certainty about income.  This is not necessarily the date on which money is received or paid out as would be the case with receipts and payments accounts.  They contain a balance sheet, a statement of financial activities and explanatory notes and are prepared in accordance with SORP.

Receipts and payments  accounts is a simpler form of accounting that consists of a summary of all money received and paid via the bank and in cash by the charity during its financial year, and a statement giving details of its assets and liabilities at the end of the year.

Non-company charities will be permitted to prepare their accounts on a receipts and payments basis along with a statement of assets and liabilities only if their income is below £250,000.  Charities with an income of £250,001 or above must prepare their accounts on the accruals basis.  Any charity which is incorporated as a company must continue to prepare their accounts on the accruals basis regardless of income.

The Charity Commission has published a toolkit on how to prepare receipts and payments accounts and guidance on how to prepare accruals accounts and receipts and payments accounts is currently being consulted on.

Audit or independent examination 

All charities, regardless of legal structure, are now required to have their annual accounts scrutinised by an external person, the level of scrutiny will depend on income of the charity.  If a charity’s governing document contains a requirement that the accounts must be audited, then the governing document must be followed.

The three different types of scrutiny are outlined in the table below:

Accounting and audit thresholds effective from 1 January 2016

*the list of qualified person is prescribed in Section (65) of the Charities Act

**The Charities Act does not require charities to take the value of a charity’s assets into consideration when determining if a full audit is required, unlike our neighbours in the UK.

The Charity Commission has published its guidance for independent examiners which also includes the Directions they must follow in carrying out an independent examination.  The matters of material significance guidance has been consulted upon but not yet published. 

The Charities SORP 

The Statement of Recommended Practice on Accounting and Reporting (SORP) by Charities applies to all charities in the UK which prepare accounts on the accruals basis. It does not refer to charities which prepare receipts and payments accounts. SORP sets the standard for accountants dealing with charity accounts and sets out a clear format for accounting practice in relation to charities.

The trustee annual report

For the first time all charities in Northern Ireland are required to complete a Trustee Annual Report (TAR) with prescribed content.  Depending on the type of charity: investment fund, parent or stand-alone charities, there are different rules regarding the content that is required in the TAR.  The Charity Commission has published guidance on how to prepare the trustees’ annual report.

Group accounts 

The regulations provide for the preparation of group accounts for parent charities and their subsidiaries.  The regulations set out how the aggregate gross income is to be calculated and also how the financial years of subsidiaries are to be determined.  The minimum threshold for the preparation of group accounts is £500,000 which is the same threshold as applies to the audit.

When must you apply the new regulations?

The new regulations must be applied by all registered charities if their first full accounting period falls on or after the 1 January 2016.  (NB registered charity means registered with the Charity Commission for Northern Ireland).  Examples of the relevant reporting periods and the arrangements that will apply are set out in the table below:

[Source: CCNI draft guidance on ‘charity reporting and accounting - the essentials’]

Reserves

Legislation does not provide detail on the levels of reserves which a charity may hold however the Charity Commission has published detailed guidance on Developing a reserves policy which should help trustees when creating or reviewing their reserves policy.  

Sources of further information

Charity Commission for Northern Ireland
t: 028 3832 0220
e: [email protected]
w: www.charitycommissionni.org.uk/manage-your-charity/annual-reporting/
Full list of guidance published by the Charity Commission for Northern Ireland

Companies House
w: www.companieshouse.gov.uk

NICVA Governance and Charity Advice Service
t: 028 9087 7777
e: [email protected]

HMRC - Charities detailed guidance notes including trading, payroll and gift aid

Developing Governance Group
Online resource of governance materials mapped to the Code of Good Governance - www.diycommitteeguide.org

Association of Charity Independent Examiners (ACIE) - www.acie.org.uk

Statement of Recommended Practice (SORP) for Charities www.charitysorp.org/

SORP Financial Disclosures Checklist SORP-Disclosure-Checklist-sml.pdf (smallcharityfinance.org.uk)

Sayer Vincent Made Simple Guides http://www.sayervincent.co.uk/resources/made-simple-guides/

Charities Act (Northern Ireland) 2008 (legislation.gov.uk)