The narrative reporting regulations require all companies (except small companies) to prepare a Strategic Report which will replace the current business review.  The existing guidance on the business review is contained within the Accounting Standard Board’s Reporting Statement: Operating and Financial Review (RS) published in January 2006.  

The requirements will apply only to those larger charities set up as companies and the Charity Commission and the OSCR have indicated that “the overwhelming majority of charities registered in England, Wales and Scotland, are not affected by the change”.  Many of these charities will not have turnover in excess of £6.5m to be considered medium or large. 

The guidance ‘Information sheet 5: The Strategic Report and company charities’ identifies that the Strategic Report of a charity that is a company should meet three objectives: 

to provide context for the related financial statements;

to provide an analysis of the charity's past performance; and

to provide insight into the charity's main objectives and strategies, and the principal risks it faces and how they might affect future prospects. 

The guidance covers: 

1. What charities are affected, explaining that it is only those companies that are classified as medium or large as defined in the Companies Act 2006.  Small companies are exempt.
2. The legislative requirements.
3. The requirement that the Strategic Report be separately approved by the company directors.  The guidance notes that “the Strategic Report should be included within the Trustees’ Annual Report as a separate clearly delineated section headed Strategic Report”.  The guidance then states that “in approving the Trustees’ Annual Report, the trustees must include a clear statement that they are also approving the Strategic Report in their capacity as company directors”.
4. Information required and the structure of the Trustees’ Annual Report.  The guidance explains that the Strategic Report should contain:

• A balanced and comprehensive review of the charity’s development and performance in the financial year, using information from the current ‘achievements and performance’ section of the Trustees’ Annual Report;
• A balanced and comprehensive review of the financial position at the end of the year, using information from the ‘financial review’ section of the Trustees’ Annual Report;
• A description of the principal risks and uncertainties facing the charity, using information from the ‘structure, governance and management’ section of the Trustees’ Annual Report; and
• A description of the charity’s future plans. 

Although the charity SORP is currently under review, the Charity Commission and the OSCR have indicated that no changes are required to the current SORP (SORP 2005) to meet the requirements for producing a Strategic Report. 

Additional guidance for directors on preparing Strategic Reports and applying the requirements of the narrative reporting regulations has been provided by the Financial Reporting Council in their Exposure Draft: ‘Guidance on the Strategic Report’. 

Click for:

• Press release (link to Charity Commission website).
• Information sheet 5: The Strategic Report and company charities (link to charity commission website).
• Our previous story on the narrative reporting regulations 
• Our previous story on the FRC Exposure Draft of guidance for directors of listed companies.
• Deloitte Charities Alert - Strategic reports for charitable companies.