Charities SORP Committee guidance on the implications of COVID-19 control measures and charity financial reporting
Charities SORP Committee has issued guidance on the financial reporting implications that may arise from the measures being put in place to contain the impact of the virus.
Status of the guidance
The guidance applies to trustees’ annual reports and accounts prepared in accordance with the Charities SORP (FRS 102). It does not amend the Charities SORP (FRS 102) and applying the guidance is voluntary.
Nevertheless, it is designed to assist accounts preparers, auditors and independent examiners as they consider the implications of control measures around the COVID-19 outbreak on trustees’ annual reports and accounts.
Some key messages from the guidance
The measures being taken to contain COVID-19 will impact on charities in many different ways.
It is important that charity trustees understand the impact of these measures on the delivery of their charity’s activities and its governance arrangements, including the management of its finances.
Where a charity’s accounts have been prepared but not yet been approved, trustees should consider whether information needs to be included in its trustees’ annual report and accounts to explain the impact of the COVID-19 outbreak on their charity.
It is important that trustees understand what changes are required.
Charities need to keep up to date with developing guidance from the relevant charity regulator in their jurisdiction.
Accounting related considerations
The guidance highlights several technical accounting issues which should be considered by charities and their accountancy advisers.
True and fair view
The trustees when preparing and/or approving the charity’s accounts are responsible for ensuring that the accounts give a true and fair view. This is based on an assessment that the reported income, expenditure, assets, liabilities and funds are fairly described and stated as at the reporting date (financial year-end), taking into consideration all relevant information regarding the conditions existing as at the reporting date. In the current circumstances this may mean that the accounts are not prepared on a going-concern basis but on an alternate basis.
Post-balance sheet events
Accounts only need to be adjusted for events occurring after the balance sheet date where there is evidence of conditions existing at the year-end date. Therefore, with respect to COVID-19, December 2019 year-end accounts are far less likely to be the subject of an adjusting post-balance sheet event.
When assessing their charity’s ability to continue to adopt the going-concern basis of accounting, trustees should consider all available information about the future at the date they approve the accounts. In particular, giving consideration to information from budgets and forecasts for income, expenditure and cash-flows. Attention should be given to the available unrestricted funds and reserves, credit facilities (such as overdrafts), and any other forms of financial assistance available to the charity.
Alternate basis for accounts preparation where not a going concern
If the accounts cannot be prepared on a going-concern basis this should be disclosed. Consideration should then be given to the effect on the accounting policies, in particular judgments and estimates to do with the valuation of assets and liabilities including any known liabilities resulting from any decision to wind the charity up.
Defined benefit pension liabilities
The valuation of pension assets and liabilities may be affected by changes in financial markets for shares and other securities and government bonds. Trustees may wish to contact the trustees of any defined benefit pension schemes in which their employees are members or for which there are ongoing obligations to identify any potential implications for the charity going forward.
Liabilities and provisions
Charities providing goods and services to beneficiaries may need to give consideration as to any costs arising from potential or actual disruption to supply chains, availability of staff, and the charity’s ability to fulfil any contractual obligations or meet performance targets which may give rise to additional costs or penalties.
ICAS members involved with the preparation or scrutiny of charity accounts should familiarise themselves with this guidance and consider its relevance to the charities they support either as a member of staff, a trustee or accountancy adviser.
It is also important to be alert to the publication of new or revised guidance from the Charities SORP Committee, the UK charity regulators, other regulators operating in the charities sector and other authoritative sources such as professional accountancy bodies, the UK Financial Reporting Council and Companies House.