Guidance for ICAS members acting for Scottish charities
The ICAS Charities Committee has updated its Guidance for ICAS members acting for Scottish charities, for periods commencing on, or after, 1 January 2015 and before 1 January 2016.
The Guidance has been updated to:
- Reflect changes the to accounting framework for Scottish charities brought about by the implementation of Financial Reporting Standard 102: the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and two new Charities Statements of Recommended Practice (SORPs).
- Provide information on changes to the accounting framework for Scottish charities following the withdrawal of the FRSSE and changes to standards for auditors applicable to the audit of accounts for periods commencing on or after 17 June 2016.
- Reflect changes to the Office of the Scottish Charity Regulator’s (OSCR’s) monitoring regime introduced on 1 April 2016.
Guidance for Members - Scottish Charities
New UK GAAP and the new Charities SORPs
From 1 January 2015, the Financial Reporting Council (FRC) replaced UK Generally Accepted Accounting Practice (UK GAAP) with a new suite of Financial Reporting Standards (FRSs). The principal new standard is FRS 102.
The Financial Reporting Standard for Smaller Entities (the FRSSE), which is based on old UK GAAP, remains in place for accounting periods commencing on or after 1 January 2015 but has been withdrawn for periods commencing on or after 1 January 2016.
As a consequence, two new Charities SORPs apply to accounting periods commencing on or after 1 January 2015 and before 1 January 2016 the Charities SORP (FRS 102); and the Charities SORP (FRSSE). It is a legal requirement for Scottish charities preparing “true and fair” accounts to comply with an appropriate Charities SORP.
Statement of cash flows
Charities applying the Charities SORP (FRS 102) must prepare a statement of cash flows for accounting periods commencing on or after 1 January 2015 and before 1 January 2016. However, a statement of cash flows exemption will become available to Scottish charities with income of £500,000 or less under the Charities SORP (FRS 102) for accounting periods commencing on or after 1 January 2016.
Charities applying the FRSSE and the Charities SORP (FRSSE) do not need to prepare a cash flow statement.
Looking ahead to changes to the accounting framework
Following the withdrawal of the FRSSE for periods commencing on or after 1 January 2016, ICAS is of the view that all charities preparing “true and fair” accounts will have to apply FRS 102 in full and will not be able to take advantage of any of the concessions available to other small entities afforded by Section 1A of FRS 102.
Section 1A provides presentation and disclosure concessions from full FRS 102. However, FRS 102 and the Charities SORP do not explicitly address the applicability of Section 1A to charities making it necessary to consider in more detail what Scottish charities will need to do to comply with Scottish charity law.
Scottish charity law requires “true and fair” accounts to comply with the Charities SORP. However, a charity adopting the provisions of Section 1A is unlikely to be able to comply with the Charities SORP (FRS 102) and therefore prepare accounts which give a “true and fair” view. Therefore, it is the view of ICAS that for periods commencing on or after 1 January 2016, Scottish Charities must comply in full with FRS 102 and the Charities SORP (FRS 102).
Charities are explicitly ineligible to qualify as micro-entities and therefore cannot apply FRS 105: the FRS applicable to micro-entities.
Ethical Standards for Auditors and auditing standards
The Financial Reporting Council (FRC) has revised both its Ethical Standards for Auditors and ISAs (UK and Ireland). The revised standards apply to audits of accounts for periods commencing on or after 17 June 2016. From this date, auditing standards are referred to as ISAs (UK).
The FRC is expected to update Practice Note 11: the audit of Charities in the UK and the illustrative auditor’s reports for charities in its Compendium of Illustrative Auditor’s Reports to reflect the requirements of the revised ISAs (UK).
Changes to OSCR’s monitoring regime
On the 1 April 2016, following engagement with the Scottish charity sector and other stakeholders, OSCR introduced a revised monitoring regime, encompassing the following changes:
- A new Targeted Regulation framework designed to ensure that OSCR’s proactive and reactive activities prioritise the protection of beneficiaries and charitable assets and the integrity of charitable status.
- A new annual return form with new questions reflecting the more targeted approach to regulation established by the new framework.
- A new notifiable events reporting arrangement for charity trustees to report details of any events at their own charity which have a significant impact on the charity or its assets and beneficiaries. There is no legal requirement to report a notifiable event but failure to do so may trigger a regulatory response from OSCR for non-compliance with trustees’ duties in section 66 of the Charities and Trustee Investment (Scotland) Act 2005.
In addition, OSCR is now publishing, on its website, the annual reports and accounts of charities with income in excess of £25,000 and of all Scottish Charitable Incorporated Organisations (SCIOs), alternatively a charity can provide OSCR with a link to its report and accounts on its own website.