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

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19 Sep 2018

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

Larger Charities

The first report, Do charity annual reports and accounts meet the reader’s needs? focuses on whether the set of accounts reviewed “met the basic requirements of the users of those accounts rather on strict technical compliance with the Statement of Recommended Practice (SORP) and other reporting requirements”. The following criteria were assessed:

  • Have the trustees filed all of the required documents that make up a set of accounts (the annual report, independent scrutiny report and the accounts) and do they provide a consistent picture of the charity’s activities?
  • Does the annual report explain what activities the charity had carried out during the year to achieve its purposes?
  • Have the accounts been prepared on the correct basis depending on the charity’s income and type, either receipts and payments or accruals accounts (also known as SORP accounts)? Also, do the accounts contain both a statement of financial activities (SOFA), which analyses the charity’s expenditure, and a balance sheet that are consistent with each other (or the equivalent if receipts and payments accounts were prepared)?
  • Have the accounts been subject to the required level of independent scrutiny depending on the charity’s income and gross assets, either an audit or an independent examination?

Samples of charity accounts, with incomes over £25,000, were taken from the register of charities in April 2017. 106 charities were reviewed for accounting years ending during the 12 months to 31 December 2015.

It was found that 74% of charity accounts in 2015 were of “acceptable quality”. This shows a continued pattern seen from the last two surveys  where it was found that approximately three quarters of the submissions were of acceptable quality. However, 28 charities within the sample were assessed to have not met the basic standard. Key reasons included:

  • Inadequate annual reports due to including little or no information on charitable activities.
  • Inadequate independent scrutiny reports.
  • The accounts did not balance or were incomplete.

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 including pro-formas of both the annual reports and accounts. Guidance can be downloaded at GOV.UK here.

Smaller charities

The second report, Do small charity annual reports and accounts meet the reader’s needs? focuses on whether each set of accounts reviewed “met the basic requirements of the users of those accounts rather than on strict technical compliance with the reporting requirements”. The following criteria were assessed:

  • Have the trustees provided both an annual report and accounts?
  • Does the annual report explain what activities the charity had carried out during the year to achieve its purposes?
  • Do the accounts contain both an analysis of receipts and payments and a statement of assets and liabilities and are these consistent with each other (or the equivalent if the accounts were prepared on an accrual basis)?  

Samples of charity accounts, with incomes less than £25,000 reported in their annual returns were selected. 110 charities were reviewed for accounting years ending during the 12 months to 31 December 2015.

It was found that 64% of charity accounts in 2015 were of “acceptable quality”. This shows an improvement in comparison to last year’s review  where only 47% were of “acceptable quality”. Key reasons why the basic standard was not reached included:

  • Both the annual report and accounts were provided, but key information was missing.
  • Either the annual report or the accounts were not provided.
  • Neither the annual report nor the accounts were provided.

The Charity Commission reminds trustees that all registered charities must prepare an annual report and accounts and make them publicly available.

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 reviews public benefit reporting of 106 charities for financial years ending in the 12 months to 31 December 2015.

Findings indicate that the percentage of charities’ annual reports that demonstrated a clear understanding of the public benefit reporting requirement was slightly higher than the prior year  (46%) at 51%.

The Charity Commission reminds trustees that the preparation of annual report, of which public benefits from an integral part of, is a statutory requirement and a good annual report can help a charity “tell their story well.”

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