Charity Finance Group is pleased to respond to the initial consultation on the recommendations of the Independent Review of the Financial Reporting Council (FRC) and supports the response submitted by the Charities SORP making-body.
CFG’s submission highlights areas of particular concern and seeks to ensure that the new regulator is structured to adequately regulate and acknowledge the wider impact of its core functions in audit and reporting on all applicable entities, specifically public benefit entities.
FRC Structure and Purpose
- CFG supports the new regulator having a clear and comprehensive objective and this must acknowledge that the reporting and auditing standards that the new regulator will set are applicable to other entities – specifically public benefit entities – in addition to companies.
- CFG strongly supports the new regulator’s need to work collaboratively and encourages close working with the members of the Charities SORP Making body and the Charity Commission for England and Wales. CFG looks forward to more detail on understanding the nature of collaborative working with these bodies.
- The new regulator’s Board, Committee and Panel structures should explicitly reflect formal knowledge, skills and experience of the charity and not for profit sector. CFG supports the Charities SORP Making body recommendation that further to formal representation on the Board and within Committees and Panel of such experience, an advisory committee is formed to ensure that the perspective from the public benefit entity sector is effectively communicated and considered in the development of financial reporting standards.
Effectiveness of Core Functions
- The current definition of PIE (Public Interest Entities) excludes public benefit entities. CFG recommends consideration of the importance of the new regulator’s role in the review of non-PIE financial reports in order to not create a gap in oversight for public benefit entities. The financial reporting standards set by the FRC are applicable to a range of types and sizes of entities and this should be reflected in the focus of the new regulator’s review work.
- The new regulator must take a broad perspective in engaging meaningfully with users of accounts about their information needs to inform the development of financial reporting standards. The new regulator must consider that different areas use accounts for different purposes and that users of charity accounts extend beyond investors as principal users.
Oversight and Accountability
- CFG recommends the need for proportionality in a strengthened framework for internal financial controls. Charities’ internal controls play an essential role in ensuring Trustees meet their legal obligations and will vary depending upon the size and complexity of the organisation. The new regulator should ensure that any strengthened framework reflects the diversity of those entities to whom it will apply and that it seeks to improve the control environment by facilitating effective decision making, rather than driving compliance led behaviour.
For further information, please contact Roberta Fusco, Director of Policy and Engagement
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