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Accounting and reporting

CFG has its say on the Charities SORP consultation

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. 

Post byKatherine Smithson

A new version, not updated since 2005, was finally put out for consultation in July and has understandably been a major focus of CFG’s work ever since. We estimate that over 250 of our members have actively contributed to our response which we published today.  We’ve been trying to emphasise the significance of the SORP in sector accountability, ensuring consistent and proportionate levels of transparency.  Hopefully some of this work has paid off, but the main test will be whether the resulting document is one which is accessible, easy to understand and results in overall high quality financial reporting from charities.   

Debating the FRSSE

The common suggestion that the FRSSE could, or even should, be omitted from the SORP surprised us. Without the FRSSE (an old UK GAAP standard), all charities following the SORP would be required to follow FRS 102 (the new UK GAAP), including small company charities. This would mean changing accounting policies, implementing additional disclosures, and the preparation of a cash flow statement. There are some very real reasons why we might seriously consider removing the option to apply the FRSSE. To begin with, it would significantly simplify the SORP and make the modular format and online versions easier to use. It would also remove the risk that charities are following out-dated and unsuitable accounting standards based on old UK GAAP, as well as the possibility of having to re-do the SORP in the next couple of years. Overall, the burden this would place on the smallest charities, the ones often most stretched to afford professional advice, was seen by us as too high and therefore not in the best interests of the sector. Yes, there is little doubt that in the future we need a suitable alternative to the FRSSE, one which is consulted on, up-to-date and fit for purpose. However, until then it’s ‘better the devil you know’.

The salary debate

This stretches far beyond the SORP, with a huge increase in public scrutiny over staff pay in charities, especially senior staff pay, efforts to ensure transparency in this area are not without reason.  However, a proposal to require all charities to publish the salary and job title of the highest paid member of staff seemed relatively arbitrary to us – we have to think about what this actually tells the user of the accounts and how this compares to the quality of the information already available. CFG is promoting the extension of requirements to publish information on the number of individuals earning salaries within bands of £10,000, above a threshold of £60,000.  In our view this provides greater understanding of the remuneration costs across the organisation.  We have also advised that larger charities are asked to explain their remuneration policy in their Trustees’ Annual Report.  The SORP’s role is to ensure that financial reporting gives a true and fair view of the charity’s position and that the user of the accounts has a good knowledge of the operations of the business.  It’s our view that CFG’s proposals achieve this more so than publishing individuals’ pay.

Mixed motives?  

The debate around mixed motive investments (MMI) is not a new one.  It’s clear that while pockets of the sector find the concept useful for framing activity, for many MMIs are seen as a myth in practice, arguing that MMIs can be classified as either investment activity or charitable activity. The SORP’s position?  That MMI should be accounted for in the same way as normal investments.  But do we need a whole section on MMIs under the auspice of a ‘social investment’ module if this is the case?  If it looks like an investment, it gives return like an investment, and it’s impaired like an investment…well, it probably is an investment.  CFG is not asking for the term MMI to be removed altogether from the SORP but has recommended that the social investment module focusses on the treatment of Programme Related Investments and that for MMI practitioners are simply referred to the investments section of the SORP and to CC14. 

Edited August 2018

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