Charity Reporting Regulations
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A presentation by the Charity Commission for Northern Ireland explaining the new accounting and reporting regulations for charities.
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Charity Reporting Regulations
- 2. Charity law – accounting and reporting New law relating to charity accounting and reporting commenced on 1 January 2016 Legislation applies to all registered charities and sets out: the form and content of charity accounts (receipts & payments or accruals accounts) the form and content of the trustees’ annual report the level of external scrutiny required ie independent examination or audit Purpose of the legislation is to increase accountability and transparency
- 3. Charity law – accounting and reporting Accounting and reporting guidance public, consultation December 2015 - March 2016 Charity reporting and accounting: guidance summary Charity reporting and accounting: the essentials Receipts and payments accounts and the trustees’ annual report Accruals accounts and the trustees’ annual report Public benefit requirement guidance – public benefit reporting Also consulted on Directions for Independent Examiners Publication of consultation response and final guidance summer 2016
- 4. Charity annual reporting All registered charities must report to the Commission annually. Annual reporting introduced in Northern Ireland on a phased basis: Phase 1: interim annual reporting – temporary arrangements applicable prior to 1 January 2016, and to a limited number of charities. Guidance on Interim reporting requirements available on Commission’s website. Phase 2: full annual reporting – permanent reporting requirements in accordance with the accounting and reporting regulations commenced on 1 January 2016, and will apply to all registered charities. recommend that all charities apply full annual reporting requirements as they will be required in all subsequent years
- 6. Which arrangements must I report under?
- 7. Relevant financial year and reporting deadlines Relevant financial year means the financial year for which the charity accounts are prepared Registered charities are required to report from their first full financial year after registration with the Commission Key dates that will impact on your reporting requirements are: 1. The charity’s financial year (start and end date) 2. The date of registration with the Commission, and 3. 1 January 2016 (date new regulations commenced) These dates to identify which requirements apply to you Filing deadline – you must submit annual reporting information to the Commission within 10 months of your charity’s financial year end
- 8. Charities that fall under interim reporting arrangements, or are not yet registered with the Commission, should prepare for forthcoming compulsory accounting and reporting changes Assess your starting point (cash/accruals/own accruals approach) and plan for changes As a matter of good practice prepare accounts and reports for preceding year in accordance with the regulations Moving from cash accounts to accruals accounts consider if you need help - must be prepared by someone who has the ability and expertise For those preparing the accounts - Help sheets and FRC Staff Education Note 13 on Charities SORP microsite for help on making the transition to Charities SORP FRS102 for the first time www.charitiessorp.org Preparation and planning
- 9. Full accounting and reporting regulations set out what you must do depending on the size and type of your charity. Under charity law, size is determined by gross annual income. Broadly speaking a charity’s gross annual income will determine: • the type of accounts you must prepare • the amount of information you must provide in the trustees’ annual report and • the level of review your accounts must have ie independent examination or audit. BUT remember a charity must also comply with: • its governing document • company law • any other enactment Thresholds – gross income definition
- 10. Receipts and payments accounts: total receipts recorded in the receipts and payment account from all sources excluding the receipt of any endowment, loans and proceeds from the sale of investments or fixed assets Accruals accounts: the income from all sources in the reporting period, including the conversion of endowment to income, but excluding: gifts of endowment, net investment gains/(losses), all revaluation gains/(losses) on retained assets not due to impairment, actuarial gains/(losses) and such other gains (losses) that are excluded by accounting standards from the calculation of net income Thresholds – gross income definition
- 11. High level requirements Income <= £250,000 – Can elect to prepare Receipts & Payments – Independent Examination (trustee assured) – Trustee Annual Report – Annual Monitoring Return Income £250,001 to £500,000 – Accruals Accounts (SORP) – Can be Independent Examination (must be qualified – see Act) – Trustee Annual Report – Annual Monitoring Return Over £500,000 – As above but full audit Group income > £500,000 - As above and must prepare consolidated accounts
- 12. What will happen next? On receipt of the accounts, reports and annual monitoring return the Commission will: Publish the accounts online (register of charities) Assess submitted documents Address all zero tolerance issues Potentially visit a charity We will also publish if the charity fails to submit accounts to the Commission on time
- 13. Charity reporting – the register
- 14. Charity reporting – the register
- 15. Charity reporting – the register
- 16. Annual reporting to date Some registered charities have already reported to the Commission under interim reporting arrangements: all submitted information within their 10 month deadline annual reporting information, including PDF copies of accounts & reports available to view on the register of charities accounts submitted under interim reporting arrangements not subject to specific checks relating to the format or review/audit This will change for accounts submitted under the full accounting and reporting regime when all registered charities must comply with the new requirements
- 17. Annual reporting to date – errors to avoid However, some charities had to re-submit annual reporting information for a variety of reasons. 18% of charities had to resubmit accounts and reports due to inappropriate/sensitive material included in PDF attachments. For example, inclusion of: bank statements personal documents trustee details form (part of registration for internal use) accounts and reports will automatically upload to the register of charities – make sure you check the PDF attachment before you submit your annual monitoring return!
- 18. Annual reporting to date – errors to avoid 24% charities had to re-submit ‘failed accounts’. Example reasons for failed accounts include: accounts submitted for incorrect financial year accounts submitted in draft form key information did not match the information provided in annual monitoring return eg income and expenditure date on accounts submitted different from information held on register
- 19. Directions for Independent Examiners 1 January 2016 introduction new requirement for Northern Ireland charities - Independent Examination (IE) New concept for many here – minimum requirement for all registered charities with gross annual income up to £500k Charities Act (NI) 2008 sets out qualifications an independent examiner must have - depends on the size of charity Guidance for trustees on appointing an independent examiner available in Charity reporting and accounting: the essentials
- 20. Directions for Independent Examiners The Commission will publish Directions and guidance that sets out the procedures an examiner must follow when carrying out an independent examination in NI under section 65 2008 Act Different types of Independent examiner however there is only one type of independent examination These Directions, and guidance is applicable to all independent examinations of charity accounts in NI Directions for Independent examiners and supporting guidance planned publication Summer 2016
- 21. Thank you
- 22. For more information visit our website www.charitycommissionni.org.uk Follow us on Twitter @CharityCommNI Contact us
Editor's Notes
- The charity landscape in Northern Ireland is undergoing a period of profound transformation. Registration of charities is fully underway, in fact, there are now over 4,000 registered charities in Northern Ireland. As the next step forward - as of 1 January 2016 new law relating to charity accounting and reporting commenced. The Charities (Accounts and Reports) Regulations 2015 will impact on every registered charity in Northern Ireland and marks a key milestone in enhancing transparency and increasing the accountability of those charities to their beneficiaries, donors and members of the public. The Commission’s annual reporting guidance (currently being finalised, to be published later this year) will support those charities in understanding their legal duties under the new requirements. Aim today to provide an overview of what the requirements may mean for you and your charity.
- Broadly speaking the new regulations set out: the form and content requirements for all charity accounts – that is whether you must prepare accruals accounts or can elect to prepare receipts and payments accounts, and the format these accounts must take a requirement for all charities to produce a trustees’ annual report – the content of which will depend on the size of your charity, smaller charities will have lesser requirements whereas larger charities will be required to include more detailed information a requirement for all charities to have their accounts independently examined or audited – depending on the size of your charity, smaller charities may opt to have their accounts independently examined whereas larger charities will be required to have a statutory audit of their accounts
- In preparation for the introduction of the regulations, and to support charities in understanding their new duties, the Commission developed a suite of draft accounting and reporting guidance. This draft guidance was open for public consultation for 12 weeks from December 2015 to March 2016 and many of you may have responded to the consultation and/or attended one of our events Currently working to analyse and collate responses, and prepare final consultation response document making it clear how we have considered them when shaping and redrafting the guidance suite. and publishing Directions and guidance for for Independent Examiners. Publish consultation response document and final suite of accounting and reporting guidance, including Directions and guidance for independent examiners later this year also.
- This means all registered charities must report to the Commission on an annual basis To date, annual reporting by registered charities has been introduced in Northern Ireland on a phased basis: Phase 1: interim annual reporting – Prior to the commencement of the full regulations, an interim annual reporting programme was put in place, covering the transitionary period between the commencement of registration and the full annual reporting regulations. These temporary arrangements were applicable prior to 1 January 2016, and to a limited number of charities. Means that, while the full regulations did not commence until January 2016, the Commission has already started to receive – and publish – accounts and reports of registered charities. In fact, as at 31 March 2016 the first 42 charities required to submit accounts and reports to the Commission had done so within their ten month deadline. Using these first submissions, the Commission was able to commence its monitoring programme and carry out basic compliance checks on 41 accounts by year end. Detailed guidance on Interim reporting requirements can be found on the Commission’s website Phase 2: full annual reporting – permanent reporting requirements in accordance with the accounting and reporting regulations commenced on 1 January 2016. This presentation will mainly focus on Phase 2 of the annual reporting programme. Some charities will be able to report under the interim reporting requirements for their first year of reporting but we strongly recommend that all charities apply full annual reporting requirements as they will be required in all subsequent years.
- This table summarises the key differences between the interim and full reporting programme – as you will see, there are some key similarities, as well as differences. Under both phases – interim and full – registered charities are required to complete and submit to the Commission an annual monitoring return and a set of accounts, as well as any reports required. The key differences are that, all charities reporting under the full phase : Must prepare a set of accounts in accordance with the form and content requirements of the new regulations ie the requirement to prepare accruals accounts or where permissible, elect to prepare receipts and payments. Must prepare a trustees’ annual report in accordance with the regulations - this includes a requirement to report on the public benefit Must have an independent review of the accounts and reports - depending on the size of your charity this may be an independent examination or audit
- This flowchart is a quick way to check if you fall under interim or full reporting requirements in the first year you report on. This flowchart is available in a number of our pieces of guidance. Remember that, while you may fall within the interim arrangements for you first reporting year as a registered charity, the full arrangements will apply to your subsequent reporting years so it would be best practice to consider following the full arrangements as soon as possible.
- Few key terms and dates that it is important for you to understand – these are listed on this slide and, broadly, are: Firstly, relevant financial year – this is the financial year that you are reporting on. Registered charities are required to report from their first full financial year after registration with the Commission Secondly, key dates that will impact your reporting requirements are: The charity’s financial year (start and end date) The date of registration with the Commission 1 January 2016 (date new regulations commenced) Use these dates to identify which requirements apply to your charity. Finally, filing deadline – you must submit annual reporting information to the Commission within 10 months of your charity’s financial year end
- As a matter of good practice prepare accounts and reports for preceding year in accordance with the regulations – look at the requirements of the trustees’ annual report – are you recording the right information that will enable you fulfil the requirements when writing the report? Are you looking at your activities during the year to see if they were in line with what your charity has been set up to do, and whether they impacted on your beneficiaries? Assess where you are starting from – are you recording sufficient financial information to prepare the accounts and provide disclosure information? Also if you are moving from cash accounts to accruals accounts there will be some additional work in the first year. Whoever is producing your accounts must have the requisite skills to prepare these accounts, as they will need to prepare an opening balance sheet, and work with you to set accounting policies. The accounts prepared under accruals accounts must have comparative figures for the prior year, this will be as far as practicable on a like for like basis. Help is available on SORP microsite - in particular Help sheet 3: Differences between FRSSE SORP and FRS 102 SORP and FRC Staff Education Note 13 which sets out the transitional procedures for first time users of FRS 102.
- The full accounting and reporting requirements set out what you must do depending on the size and type of your charity. Under charity law size is determined by gross annual income. The new requirements under charity law are based on gross income thresholds so it is important whoever is preparing your accounts is aware of the definition. Your charity’s gross annual income will determine the type of accounts you must prepare, the amount of information you must provide in the trustees’ annual report and the level of review your accounts must have ie independent examination or audit. However it is important to remember that charities may must also comply with any other requirements. For example, charities that are companies are not permitted to prepare receipts and payments accounts under company law.
- The full accounting and reporting requirements set out what you must do depending on the size and type of your charity. Under charity law size is determined by gross annual income, which is defined as: . Receipts and payments accounts: total receipts recorded in the receipts and payment account from all sources excluding the receipt of any endowment, loans and proceeds from the sale of investments or fixed assets Accruals accounts: the income from all sources in the reporting period, including the conversion of endowment to income, but excluding: gifts of endowment, net investment gains/(losses), all revaluation gains/(losses) on retained assets not due to impairment, actuarial gains/(losses) and such other gains (losses) that are excluded by accounting standards from the calculation of net income
- Income <= £250,000 Can elect to prepare Receipts & Payments Independent Examination (trustee assured) Trustee Annual Report (Simplified) Annual Monitoring Return Income £250,001 to £500,000 Accruals Accounts (SORP) Can be Independent Examination (must be qualified – see Act) Trustee Annual Report (Full) Annual Monitoring Return Over £500,000 As above but full audit
- When a charity submits annual reporting information to the Commission key information is displayed on the charities entry on the register. For all charities this will include the income and expenditure for the year (taken from the AMR) and the compliance status of the charity in terms of annual reporting. You can see this charity’s status is up-to-date however if the charity had not filed the reporting information within the 10 month deadline the status of the charity would show ‘in default’ in red. When a charity ‘in default’ does in fact comply and files annual reporting information with the Commission the status will clearly show ‘due documents received late’. This status will remain until the following reporting year when only if the charity files within the reporting deadline it will show on the register as charity ‘up-to-date’
- For larger charities, those required to complete Part C of the annual monitoring return (income over £250k in the 2016 AMR) you will also be able to see high level key financial information displayed graphically.
- For all charities you will be able to access and download PDF copies of the accounts and reports submitted to the Commission.
- Remember annual reporting information and accounts and reports automatically published to the register of charities – the Commission will make checks on the information published and will contact you to re-submit where they have identified inappropriate/sensitive material
- During the consultation on the draft accounting and reporting guidance, the Commission also called for views on new, draft Directions for Independent Examiners, which examiners must follow when reviewing charity accounts. 1 January 2016 introduction new requirement for Northern Ireland charities - Independent Examination (IE) New concept for many here – minimum requirement for all registered charities with gross annual income up to £500k. Charities Act (NI) 2008 sets out qualifications an independent examiner must have - depends on the size of charity Different types of Independent examiner however there is only one type of independent examination specified in the legislation No de-minimis for registration or accounting & reporting and no asset threshold audit Directions and guidance will be a ‘one size fits all’ - applicable to all independent examiners of all types of charities eligible for independent examination
- Commission will publish Directions that set out the procedures an examiner must follow when carrying out an IE in NI intended to be a more limited form of scrutiny than full statutory audit - appropriate for smaller charities, anticipated less cost however should still provide for a thorough form of scrutiny Conduct of an independent examination of charity accounts will be subject to the Commission’s Directions – conduct of an audit is subject to international standards of audit Comment period now closed - Directions, once approved by the Commission’s Board, will be published along with IE guidance, anticipated summer 2016