Charity accounts - know your obligations

25 April 2016 • HMRC News

Recent research conducted by the Charity Commission into the quality of annual reports completed by smaller charities concluded that many smaller charities were not aware of their reporting obligations.

This observation and the commission’s recent research outlined on Gov.uk comes as no surprise to Warrener Stewart’s Gary Chapman, the Fulham based Chartered Accountants includes several charities as clients; “We work with a number of charities completing both audits and independent examinations, together with assisting with financial reporting. For the charity sector it is imperative to maintain clear and transparent financial records. We would be happy to hear from any charities who would like our assistance with their financial reporting obligations.”

The Charity Commission’s research revealed the following findings:

Small charities not up to scratch

The research showed that just under half of the annual report and accounts that were provided to the commission by small charities met a minimum, basic standard. Many small charities do not appear to be aware of their reporting obligations - 1 in 5 sent some other form of report, 1 in 6 did not send the commission any form of report at all, and several small charities only sent their annual report and accounts after the commission had provided further explanation of the requirements to them.

However those charities that use both the commission’s annual report and accounts templates showed a significant improvement on the others, with 71% producing reports and accounts of acceptable quality.

Larger charities are improving

The larger charities report shows their accounts are improving. It tells a more positive story, with over three quarters of charities producing sets of accounts that met a minimum basic standard in 2013-14, up from just over half in 2011-12. Looking at the 3 documents that make up a set of accounts:

90% of annual reports covered either the charity’s purposes and its activities to carry them out or its reserves policy: most included both

90% of independent scrutiny reports were of the correct type, either audit or independent examination, for the charity’s size

93% of accounts met a basic integrity standard and all of the charities that were required to prepare accruals accounts had done so

But some larger charities continue to produce accounts with major flaws

Charities continue to file sets of accounts with the commission with major flaws, such as a chairperson’s statement instead of an annual report, an accountant’s report instead of an independent examiner’s report, or accounts that don’t balance. They also file annual reports that look well-presented but are not transparent about what the charity does, or about how the trustees are dealing with financial risks shown in the accounts.

More charities are talking about the public benefit that their activities provide - but not nearly enough

The public benefit report showed that whilst the number of charities meeting the public benefit requirement has improved, just over 40% of charities in their 2013/14 annual reports compared to just over a quarter in 2011/12, the numbers still need to improve significantly. Meeting this requirement is more than just discussing a charity’s activities. It also requires an assessment of how a charity’s activities have led to benefit for its beneficiaries and a statement that the trustees have had regard to our guidance on public benefit.

“Warrener Stewart understands our business; they give us more than any other Accountancy service we have ever received in the past. They are extremely commercially aware and very current when it comes to changes in tax policy. ”
Diana Hoare - Anderson Hoare