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Charity reporting & accounting needs to change, says SORP panel

Charity reporting and accounting must refocus with the views and needs of the users of charity reports and accounts at their centre, says the SORP governance review panel.

The independent review panel was set up to review the future development of charity reporting and accounting and has now published its final report making a number of recommendations under five key themes.

It has made the recommendations to ensure that the way that charities report on their work and account for their income under the Statement of Recommended Practice (SORP) can meet new public expectations and are fit for the future.

The Charities SORP (Statement of Recommended Practice on Accounting and Reporting by Charities) sets out the financial reporting requirements that apply to almost all charities preparing accounts designed to give a true and fair view. The four charity regulators in the UK and Republic of Ireland held a governance review of the constitution and composition of the Charities SORP committee and the SORP making process over the last 9 months.

The governance review was undertaken by an oversight panel comprising a representative from each of the four charity regulators and an observer representative nominated by the FRC. The work of the panel was overseen by Professor Gareth Morgan, an independent Chair retained by the SORP-making body.

Prof. Morgan said: “If the SORP is to succeed for another quarter century it has to move on to meet new expectations regarding the accountability of charities for their plans and their use of financial resources. The resulting financial statements must be meaningful for those who use them. And the SORP must remain usable for those preparing charity accounts – there will always be some complaints, but it must be possible for the vast majority of charities subject to the SORP, whether larger or smaller, to apply it effectively when preparing their annual reports and accounts each year without disproportionate costs or effort.”

The final report’s recommendations are that:

  • The needs of the wider public and beneficiaries require a refocusing of the SORP and greater simplification of reporting requirements for smaller charities
  • The SORP Committee should be retained but reforms are needed regarding size, composition and clarification of the respective roles of the SORP-making body and SORP Committee
  • Broader and ongoing engagement is needed with a much wider group of stakeholders if the SORP is to continue to be fit for purpose
  • The sector and charity regulators should collaborate to identify and codify best practice in non-statutory financial reporting
  • The SORP-making body, supported by the Financial Reporting Council (FRC) needs to ensure that the redesigned SORP development process takes effect
  • The charity regulators are asked to ensure that SORP process is adequately resourced to implement these recommendations.

Prof. Morgan said the responses from the sector to the consultation “brought out the inherent tensions in the role of the Charities SORP”.

He said: “The panel considered consultation submissions from some who were largely content with the current SORP-making process and only wished to see minor change, from others who called for more radical change to the structure and operation of the SORP Committee and its relationship to the charity regulators, and from some who felt that the whole paradigm of charity financial reporting under the SORP was fundamentally flawed in terms of meeting the needs of users.

“Reponses also highlighted the tensions between large and smaller charities as entities required to apply the SORP, issues between the regulatory frameworks in the four jurisdictions, and between the very different types of organisations in the charity sector but all subject to the SORP, including grant-makers, faith-based organisations, charities delivering public services, membership bodies and many other categories.

“Whilst we cannot resolve all these tensions, we believe that our recommendations will enable the SORP to be much more effective in future at bridging these demands.”

The governance review was undertaken during 2018 and early 2019 and included a public consultation and a number of events for participants to share their views. The 36 recommendations will now be submitted to the charity regulators for consideration and response.

The panel said it hopes that this report will be considered at board level by each regulator for support and allocation of resources to take the recommendations forward.

To read the report in full, please visit: https://www.gov.uk/government/publications/charities-sorp-governance-review-2018-to-2019

Commenting on the report, Philip Griffiths, charity partner at Mitchell Charlesworth said: “The charity SORP has become increasingly more complex over the course of its development over its 25-year existence. In particular, for smaller charities, it can be considerably burdensome and it is doubtful whether users benefit from the level of detail required. Any proposals to simplify the reporting requirements for smaller charities must be welcomed for all involved.”  

For further information please contact a member of our Charities team:

Charity Newsletter

Autumn 2019

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