As charities prepare to close one financial year and step into a new one, the coronavirus will be having multiple effects on their organisation, for their staff and beneficiaries, and they will be having to change how they operate. The next few weeks and months may be chaotic as organisations get used to new ways of working.
- Review timetables
Priorities have changed. Charities may need to focus on operations, cashflow and assessing which of the Government measures they can benefit from. The year end and audit may need to move down the to-do list for the time being.
- Filing extensions are available
Both Companies House and the Charity Commission are aware of the potential difficulty that organisations may have in filing the report and accounts on time. Companies House has indicated it will provide three month extensions on request, increasing the deadline from nine months to twelve months. The Charity Commission is also willing to provide extensions to the usual ten month deadline. This will provide more time to complete the preparation and audit of accounts, and prioritise accordingly.
- Running the year end
Charities should consider what information will be needed, how to access it remotely and who else needs to be involved. Some traditional year end procedures, such as stock takes, may not have been able to happen, so they need to consider how to work around this. Organisations also need to consider what other systems they might usually use to reconcile the financial information to: is there remote access and are these systems being updated? How will they capture all invoices and creditors/accruals while the team is dispersed?
- Timing of the audit
From our perspective as auditor, we are able to conduct much of our audit work remotely. The critical factor will be whether a charity’s records can be shared electronically and whether staff have access to them from where they are working. There may be circumstances where the audit could happen remotely, but it should not go ahead for other reasons. For example, if there are uncertainties impacting on going concern, then it may be necessary to wait and do the audit nearer to when the accounts will be approved or when there is more certainty.
- Keep trustees up-to-date
For the next few months, management, sub-committee and trustee meetings will have to be arranged remotely. Microsoft Teams, Zoom and Skype etc are proving invaluable in allowing management and trustees to meet remotely. Charities need to think about how frequently they need to meet and how to keep the trustees up-to-date between meetings. If the auditor would usually attend a committee or board meeting to present the audit findings, they need to ensure there is an opportunity for this to happen and the usual scrutiny to take place.
- SORP guidance is available
The SORP-making body has published guidance for trustees and preparers of charity accounts, looking at the potential impact of COVID-19 on financial reporting by charities. The guidance is available at this link: https://charitysorp.org/about-the-sorp/covid-19/
Charities must ensure they read this guidance and reflect any issues that are relevant to their organisation in the appropriate section of their annual report and financial statements.
- Assess going concern
The financial statements are usually prepared on the basis that the organisation is a going concern. This means that the trustees expect the organisation to continue operating and paying liabilities as they fall due for at least twelve months from when the accounts are signed. In the current situation, it may be hard to look ahead reliably for twelve weeks, let alone twelve months, so what does this mean for organisations?
Management and the trustees will need to assess the financial and operating outlook and identify any material uncertainties that impact on the charity’s ability to continue operating. Charities will need to assess which of the following applies to their organisation:
(1) Going concern basis is appropriate and there are no material uncertainties
(2) Going concern basis is appropriate but there are material uncertainties
(3) Going concern basis is not appropriate as the organisation anticipates it will have to cease operating within twelve months
- Going concern implications for report and financial statements
For options 1 and 2, it should be explained why this is the case in the financial statements (in the accounting policy section) and in the trustees’ report. We would expect this will impact the risk section and the future plans and may also impact the achievements for the year.
For option 2, if the uncertainties are severe, a charity may wish to delay signing the accounts until they have more certainty, later in the year.
For option 3, the audit shouldn’t be a priority. The organisation may need professional advice to help keep afloat or to explain what it should and should not do in an insolvency situation, or to help prepare management information and cash flow forecasts, but the historic financial information is less critical.
- Approval of the report and accounts
Consider if hard copies are required, or if digital versions of the report and financial statements can be created to avoid the need to print and send round hard copies for signature.
- Filing the report and accounts
Companies House do need a hard copy, but not until nine months after the year end (or twelve months with an extension). Therefore, organisations can either print a soft copy to file themselves or wait and ask their auditor to file on their behalf, which will probably have to be later in the year when offices are open. The Charity Commission do not require a hard copy of the accounts, so a PDF version should be filed electronically with the annual return.
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