The Consultation period for the Exposure Draft of the new Charity SORP is nearly over. This is now the crunch time as respondents finally decide what they will say in response to it. But I can’t help but feel that far too few charities will respond. Why is this? Perhaps it is because we feel that this is all too complicated for us and we will leave it to others and, in particular, professional firms to respond on our behalf. Or perhaps when the new Charity SORP proposals are explained it feels as if they are delivered on tablets of stone. And who are we to challenge that?
But a consultation is just that - a chance to have our say over some very important issues that could affect our accounts significantly. Perhaps one of the biggest reasons is that the consultation questions – on which people focus -seem to have overlooked some of the key issues. As a result, some important areas of the SORP have not been widely discussed. For example, there are big issues to grapple with over the recognition of income. In particular, the new charity SORP seems to suggest that it will be permissible for pledges to be recognised in charity accounts. What makes this especially difficult to understand is that new charity SORP gives no definition of what a pledge is. Would a recognised pledge have to be set out in writing? We simply don’t know. So for example, could a charity recognise income in respect of the standing orders that committed givers have signed? As the new charity SORP is currently worded a strong case could be made for this. But I struggle to come to terms with the idea of recognising pledges as income. I
fail to see how a charity can ever be ‘entitled’ to, or have a right over, a pledge (entitlement is set out in the new charity SORP as a key condition for income recognition). Even if entitlement were considered to exist with a pledge it would be a practical nightmare (and impossibility?) to be satisfied that all pledges were recorded. The proper recognition of legacy income is also far from clear. Cash or accruals? It seems that ‘anything goes’. In part this follows the confusions of FRS102. But I would have hoped that the new Charity SORP could have done better and provided a more coherent and technically robust framework for legacy income recognition.
A final point worth mentioning is the requirement of the new Charity SORP to disclose material fraud in the accounts. ‘Material’ in the context of fraud is not defined. It could be argued to be much less than ‘large’. Whilst I am all in favour of openness and transparency I very much doubt that this would be helpful for most charities. There are sufficient existing, and more appropriate, channels to deal effectively with fraud. This disclosure could needlessly undermine public confidence in charities. So I urge other accountants working for charities to make a response to the Charity SORP consultation. This can be made directly or through CFG. It can cover one concern or many. There are important issues at stake and the Charity SORP making body wants to hear from you. Richard Bray is a CFG member and is Regulatory and Taxes Manager at Cancer Research UK
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