ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

Cash or accruals: choices made by Scottish charities with income under £250,000

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Elaine Alsop and Gareth Morgan

17 September 2018

Key points

  • There is an appetite for the R&P regime among larger charities eligible for this concession, with Scottish charities and their advisers appreciating the usefulness of R&P accounts for engaging stakeholders.

  • Professional accountants acting for charities should ensure that their knowledge of charity accounting is kept up to date to ensure that charity accounts are of sufficient quality.

  • There is concern among qualified charity treasurers, that independent examination fees are not sufficient to reflect the work that is required.

Elaine Alsop and Gareth Morgan report on a study assessing how the receipts and payments regime is currently operating for Scottish charities.

All UK charities have a legal duty in law to publish a trustees’ annual report and accounts. However, in all three UK charity law jurisdictions (Scotland, England & Wales, Northern Ireland) smaller charities generally have a choice whether to prepare accruals-based accounts following the Charities SORP, currently SORP (FRS102), or to prepare receipts and payments (R&P) accounts, a cash-based simpler alternative.

Receipts and payments accounts under Scottish charity law

The Charities Accounts (Scotland) Regulations 2006 allow the trustees of most non-company charities with gross income of less than £250,000 to prepare R&P accounts as their statutory accounts for filing with the Scottish Charity Regulator (OSCR).  Furthermore, the 2006 Regulations are prescriptive as to what should be included:

  • A trustees’ annual report.
  • A receipts and payments account for the financial year.
  • A statement of balances as at the last day of the financial year.

The R&P option is not available for charitable companies (since their accounts must give a true and fair view in order to comply with the Companies Act 2006) – but companies account for fewer than 20% of charities on the Scottish Charity Register. However, the R&P option is available for charitable trusts, associations, SCIOs (Scottish Charitable Incorporated Organisations) and most other charities up to £250,000 gross income.

There are over 24,000 charities registered with OSCR of which approximately 80% have a gross income of under £250,000. If the R&P option is offered as a simpler alternative, with prescriptive requirements, how widely is it favoured amongst eligible charities, and what drives the decision to adopt this cash-based approach?

About the study

A study carried out in 2017, identified all 97 non-company charities in south-east Scotland (East Lothian, Midlothian, West Lothian and the Scottish Borders) with income levels of between £100,000 and £250,000, with a view to establishing:

  • How many charities opted to prepare R&P accounts and how may opted to prepare accounts in accordance with the Charities SORP.
  • The reasons behind the form of accounts chosen.

Data was collected from 90 of these charities, from their filed accounts and charity record held on the Scottish Charity Register. Ten charities also took part in interviews regarding their choice of accounting format.

Charities SORP accounts preferred, but not by all

Of the 90 sets of accounts reviewed, 39% were on the R&P basis. The proportion was higher for those relying on individual donations and community fundraising and more commonly found at lower income levels or where a charity had been more recently established, particularly as a SCIO.

Although accruals accounting is the dominant approach in this sample, it shows a certain appetite for the R&P regime, particularly bearing in mind that the R&P threshold was only increased to include these charities in 2011 (previously, R&P accounting was only permitted where a charity’s gross income was £100,000 or less).

Several influences can be identified, from data collected from the accounts and subsequent interviews with charity treasurers or finance staff, as drivers of the accounting and reporting decision in the specific charities considered.

Legislation impacted the accounting choice, but only if those responsible for preparing the accounts were aware of its implications, for example changing from accruals accounts to R&P when the threshold was increased in 2011 to £250,000. The implementation of the new SORP in 2015, and subsequent withdrawal of the FRSSE SORP in 2016, also caused charities to adopt the R&P accounts regime.

A high proportion of those interviewed noted that their Independent Examiner (IE) influenced the accounting approach and those without an accounting background were particularly reliant on the IE. Of the accounts reviewed where the IE was clearly professionally qualified, approximately 70% were on the accruals basis, supporting the popular opinion that accountants prefer the accruals regime, however, almost a third of these qualified accountants were associated with R&P accounts.

Accounting concepts and a wish to show a true and fair view were reasons given in interviews by accountants for adopting the accruals approach, however, there was concern that this was at odds with the management reporting which tended to be focused on the charity’s cash flow. Therefore, the usefulness of R&P statutory reporting was appreciated as a method to avoid confusion or the need to provide a separate summary to accompany the annual accruals-based accounts.

Horses for courses

A common theme was the simplicity of the accounts; R&P accounts were accepted as more understandable and useful to the trustees and the wider community. Charities delivering services commissioned by the public sector (e.g. social care), were more likely to adopt accruals-based accounting, possibly driven by the perception large grant funders prefer this, or it appears more professional. However, almost all interviewees accepted the need to discharge accountability by reporting appropriately and coherently, justifying the trust placed in the charity and the finance official, whichever regime adopted.

Regardless of the approach adopted, those interviewees preparing their own accounts acknowledged R&P accounts would be simpler to prepare, although they didn’t envisage any cost savings in this – their time was voluntary and day-to-day accounting would not be impacted.

Independent examiner fees

None of those interviewed thought the IE would charge a lower fee for R&P accounts, in fact, many already received waived fees, or thought their fees were too low for the professional advice they received.  However, information gathered from the accounts highlighted considerably reduced IE fees for R&P accounts, with 77% at £200 or under, many for a waived fee, compared to 24% at under £200 for accruals. Comparing IE fees per £10,000 of income, there was an average of £34 per £10,000 for R&P accounts and £78 per £10,000  for accruals-based accounts. This does tend to show R&P accounts are a cost-effective option, even if this was not a prime concern to trustees.

Quality of accounts

It is also worth noting the quality of accounts varied, with some qualified accountants linked to accounts with missing statements, disclosures and incorrect references regarding the SORP, even confusing a SCIO with a company, highlighting a lack of charity specific knowledge.

Concluding thoughts

Clearly, there are merits in both accounting approaches, and each charity must decide the best fit to its circumstances.

The study shows that charity R&P accounts are generally seen as simpler, are typically examined at lower fees than accruals accounts, and many professional accountants are comfortable with the R&P basis.

There is an appetite among trustees of smaller charities to meet their legal responsibilities, in order to demonstrate that the small organisations they run are professionally managed, regardless of whether adopting R&P or accruals accounts.

The complexities of the Charities SORP may be a barrier to the smaller charity, but it is also a subject of debate whether the charities themselves want the concession of R&P accounts. Does a choice over which format to adopt provide simplicity or add to the complexity of their accounting burden?


About the authors

Elaine Alsop is an ICAEW accountant and director of East Lothian-based third sector consultancy firm EA Independent Ltd. She holds an MSc in Charity Resource Management from Sheffield Hallam University where she undertook the research described in this article.

Dr Gareth Morgan is Emeritus Professor of Charity Studies at Sheffield Hallam University, senior partner in charity consultants The Kubernesis Partnership LLP, and a member of the ICAS Charities Panel.

Documents

Guidance for charity independent examiners on going concern

By the ICAS Charities Panel

15 February 2018

ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: