Guiding the development of the Charities SORP
Christine Scott reports on the ICAS Charities Panel’s response to an independent review of the governance arrangements for developing the Charities SORP.
The focus of the review is the work of the Charities SORP Committee: the advisory Committee tasked by the UK charity regulators to develop the Charities SORP on their behalf.
The UK charity regulators, as the Charities SORP-making Body, commissioned the review following concerns raised by a Charities SORP Committee member upon resignation about the composition of the Committee and the need for charity accounts to be more transparent.
Purpose of the Charities SORP
The main purpose of the Charities SORP is to interpret UK accounting standards for the charity sector and to assist the sector to comply with those standards.
The SORP has evolved to include corporate reporting requirements which are underpinned by law rather than standards issued by the Financial Reporting Council.
Together the corporate and financial reporting requirements of the SORP aim to enable a charity to tell its story and to better demonstrate its stewardship of charitable assets and to explain its financial performance and financial position.
The Charities Panel believes that the Charities SORP goes some way to achieving this aim but recognises there is scope for improvement.
The Panel asks the SORP Committee to review its approach to including good practice guidance within the financial reporting modules of the SORP, beyond the requirements charities must follow.
This is accompanied by recommendations that a more precise drafting style is followed when the SORP is next revised and that more robust procedures are introduced to review the consultation draft before publication.
Composition of the Charities SORP Committee
The Charities SORP Committee is currently composed of representatives from each of the UK charity regulators, academics, accounts preparers and accountancy advisers. The key question is, therefore “Is there sufficient representation from broader stakeholders?”
Accountancy expertise is needed to fully participate in the work of the SORP Committee and the Charities Panel has made the following suggestion to encourage broader stakeholder engagement in setting the SORP.
Charities with an income of £500,000 or less, who do not employ a professionally qualified accountant, may find it helpful for illustrative accounts to be published alongside the SORP consultation draft.
This would enable the trustees of smaller charities to assess more easily how proposed changes would impact on their charity.
The Charities Panel also recommends that the Charities SORP Committee is strengthened by appointing additional voting members with experience of grant-making; acting as trustee for a smaller charity, with an accountancy background; and standard-setting.
Other activities
The work of the Charities SORP-making body and the Charities SORP Committee are not limited to developing the Charities SORP.
For example, the Charities SORP-making Body responds to FRC consultations on financial reporting matters from a charity sector perspective and the Charities SORP Committee has established working groups to consider the challenges experienced by smaller charities in complying with financial reporting requirements.
Additional good practice guidance is also published on the Charities SORP microsite, for example, to address matters specifically impacting on the charities sector which are not specifically addressed by UK accounting standards.
The Charities Panel has raised the governance arrangements around these other activities for possible consideration by the Independent Oversight Panel as part of the governance review.
Next steps
The consultation closes on 4 February and the Independent Oversight Panel intends to make formal recommendations about the governance of the Charities SORP Committee in time for changes to be made by autumn 2019.
The Charities SORP Committee will begin work on the next edition of the Charities SORP (FRS 102) in autumn 2019, for consultation in early 2021.