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Charity Commission publishes reviews into the quality of charity annual reports and accounts

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13 Apr 2016

The Charity Commission has published the findings of three reviews which looked at the quality of charity annual reports and accounts in both the up to £25,000 (smaller) and over £25,000 (larger) income brackets; and at how well charities are meeting their public benefit reporting requirements.

Larger Charities

The first report, The Quality of Charity Accounts, looked at “the percentage of charity accounts monitored found to be of acceptable quality” basing its assessment of ‘acceptable’ on how useful the set of accounts was considered to be to the users of those accounts, rather than on strict technical compliance with the Statement Of Recommended Practice (SORP).  Samples of charity accounts, with incomes over £25,000, were taken from the register of charities in September 2015. 109 charities were reviewed for accounting years ending during the 12 months to 31 March 2014. 

It was found that 77% of charity accounts in 2013/14 were of ‘acceptable quality.  This shows an improvement on the findings of a previous review in March 2015 which reported figures of 68% in 2012/13 and 54% in 2011/12.  The report also looked at the annual reports, the independent scrutiny report and the accounts of the charities in the sample – all of these things are required to be submitted by charities within 10 months of the financial year end.  Key findings include:

  • 90% of charities included either a statement of their purposes and their activities to carry out their purposes or a policy on holding reserves in their annual report.   However the Charity Commission does indicate that “as in previous years, there were several poor quality submissions” including 2% not including any form of report.
  • 90% of the accounts had received the required level of independent scrutiny.  Again, there were instances of poor quality submissions with, for instance, 2% not filing any form of independent scrutiny report and a further 7% providing either an accountant’s report or some form of scrutiny report that did not use the correct wording as required by the Charities (Accounts and Reports) Regulations 2008.
  • Accruals accounts were provided by all charities that were required to produce them (required when income is over £250,000).  93% of accounts met a “basic integrity” standard.  This was that the accounts contained both of the prime statements, the statement of financial activities (SOFA) and the balance sheet (if accruals accounts) or receipts and payments account and statement of assets and liabilities (if receipts and payments accounts), and that their closing balances agreed with, or reconciled to, each other. 

The Charity Commission highlights that “it is a statutory requirement to prepare an annual report and accounts and arrange for them to be subject to independent scrutiny, if required”.  It reminds Charities that there are a number of resources to assist trustees and independent examiners on the preparation and scrutiny of the annual report and accounts.  

Smaller charities

The second report, The quality of small charity accounts, considers “the quality of accounts prepared by charities with incomes less than £25,000”.  Accounts quality was based on how useful the set of accounts is to users of those accounts rather than on strict technical compliance with the Charity SORP.   Samples of charity accounts, with incomes less than £25,000 reported in their annual returns were selected.  108 charities were reviewed for accounting years ending during the 12 months to 31 March 2014. 

It was found that 47% of smaller charity accounts in 2013/14 were of ‘acceptable quality.  This figure was also 47% in 2012/13.  It indicates that “the quality of small charity accounts is not improving over time” and shows that the quality of smaller charity accounts is “much lower” than those of larger charities which are required to file with the Charity Commission.   The results indicate that the quality of the accounts of smaller charity accounts varied “from single pages to independently examined sets of accounts that met the standards required of much larger charities”.  The Charity Commission comments:

This suggests that some trustees of small charities are not aware that they are required to prepare sets of accounts in addition to completing an annual return.  While some charities have been relieved of their administrative task of filing their annual report and accounts with us, they have not been relieved of their legal responsibility to produce them.

The report also looked at the annual reports and the accounts of the charities in the sample – all of these things are required to be produced by charities within 10 months of the financial year end.  Key findings include:

  • Only 62% (52% in 2012/13) submitted an annual report.  Trustees of small charities have a legal obligation to not only prepare an annual report but make it available for public inspection.  22% (17% in 2012/13) submitted another narrative report and 16% (31% in 2012/13) did not submit any form of narrative or annual report.
  • Of those that did submit an annual report or another form of report, many of these did not include all of the information required such as a reserves policy. 
  • 70% of accounts met a “basic integrity” standard, assessed in a similar manner to the larger accounts as above.  However the Charity Commission comments that there were a wide range of approaches to presenting financial information “some of which were unnecessarily complex or unclear”.  It was found that those charities that had opted for an independent examination of their accounts, even though not required, were of higher quality. 

As with the larger charities, the Charity Commission reminds charities that there are a number of resources to assist trustees on the preparation of the annual report and accounts.  

Public benefit reporting

The third report, Public benefit reporting by charities, “looked at the quality of public benefit reporting”.   All registered charities are required to publish a trustees’ annual report which sets out the activities that the charity has undertaken for the public benefit. Charities are also required to include a statement as to whether they have had due regard to the Charity Commission’s guidance on public benefit.  

The report is an update to a report published in March 2015 and reviews public benefit reporting of 109 charities for financial years ending in the 12 months to 31 March 2014. 

Findings indicate that the percentage of charities’ annual reports that demonstrated a clear understanding of the public benefit reporting requirement have increased from 35% in 2012/13 to 45% in 2013/14.  However, the Charity Commission comments that “the level of fully compliant reporting remains far below what we would wish to see”. 

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