SORP 2005
CONTENTS
OVERVIEW OF SORP 2005
TRUSTEES' REPORT
SOFA
ACCOUNTING ISSUES
CHARITY COMMISSION GUIDANCE
APPENDICES
NOTE
The section number in SORP 2005 or other CC publication where each point covered is given in brackets.
SORP 2005
OVERVIEW OF SORP 2005
WHAT IS IT? (3, App. 4)
SORP 2005 is the Statement of Recommended Practice for the preparation of charity accounts in the UK. It replaces SORP 2000.
It only applies to accounts prepared under the accruals basis. The accruals basis must be followed by all charitable companies and by charitable trusts with income of £100,000 or more.
WHEN DOES IS START? (1)
Accounting periods beginning on or after 1 April 2005. In most cases, therefore, for 31 March 2006 year-ends.
WHY HAVE THEY PRODUCED IT? (SORP 2005: What has changed? 8)
To:
1. Clarify the purpose and scope of the SORP
2. Incorporate new financial reporting standards
3. Explain, in more detail, how to present information
OVERVIEW OF SORP 2005
WHAT ARE THE MAIN CHANGES? (SORP 2005: What has changed? 8)
Seven Specific Areas:
1. Trustees' Report - This is now more structured and focused on the purpose of the charity.
2. Income Recognition - Guidance is provided on when grant or contract income should be deferred.
3. Activity - The SOFA is now structured around the activities of the charity.
4. Heritage Assets - A new asset category is created.
5. Presentation - A number of changes.
6. Smaller charities - Exemptions from information disclosure are listed.
7. New situations - Advice is given on how to deal with a number of 'new situations'.
WHAT IS IN SORP 2005?
|
The 103 pages of the SORP are divided between: |
Number of Pages
|
|
Introduction |
5 |
|
Trustees' Report |
3 |
|
General Accounting Principles |
4 |
|
SOFA |
25 |
|
Balance Sheet |
14 |
|
Cash Flow Statement |
1 |
|
Other (Accounting Policies, Summary Financials, Subsidiaries, Charitable Companies, Retirement Benefits, etc) |
15 |
|
Appendices |
|
|
Glossary |
15 |
|
Application Of Accounting Standards |
13 |
|
Other (Funds, Thresholds, Smaller Charities) |
8 |
TRUSTEES' REPORT (41 to 59)
There is a new structure for the Trustees' Report, under seven sections
1. Reference and administrative details of the charity, its Trustees and Advisers (who we are)
- Name
- Number
- Principal office
- Trustees at date report signed
- Trustees at other times in financial year
- Chief executive officer/senior staff (A)
- Advisers: banker, solicitors, auditors, investment managers, etc (A)
2. Structure, Governance and Management (how we are organised)
- Nature of governing document
- How trustees are recruited and appointed
- Policies and procedures for induction and training of trustees (A)
- Organisational structure and how decisions are made (A)
- Related parties (A)
- Major risks statement (A)
3. Objectives and Activities (what we do)
- Objects of the charity
- Charity's aims (A)
- Objectives for the year (A)
- Charity's strategies (A)
- Significant activities (A)
- Grant making policies (A)
- Social or programme related investments (A)
- Volunteer help (A)
4. Achievements and Performance (how we have done)
- Performance achieved against objectives set (A)
- Fundraising performance (A)
- Investment performance (A)
- Factors affecting performance (A)
5. Financial Review (how we paid for it)
- Reserves policy
- Any funds in deficit
- Principal funding sources, and how expenditure has supported key objectives (A)
- Investment policy and ethical policies if relevant (A)
6. Plans For Future Periods (A) (what we are planning)
- Key objectives for the future
7. Funds Held As Custodian Trustee On Behalf Of Others (what else we look after)
- Description of assets held
- Details of charity (or charities) concerned
- Safe custody and segregation arrangements
NOTE
(A) These items may be omitted by charities not subject to a statutory audit requirement. Alternative simpler information is required under certain sections listed above.
See table 11 page 102 of SORP 2005 (copy attached)
TRUSTEES' REPORT
ADDITIONAL DISCLOSURES: (SORP 2005: What has changed? 24)
These are included in the seven sections above, but the list below highlights new disclosures
- CEO/Senior staff to whom day-to-day management is delegated by the trustees (A)
- Induction and training procedures for new trustees (A)
- Details of any social or programme-related investments (A)
- Principal funding sources (A)
- Details of any social, environmental and ethical concerns taken account of in investment policy (A)
SOFA
ACTIVITY (Table 3)
The main change in SORP 2005 is the move to activity accounting.
Income and expenditure is to be shown under three activity groups:-
- Fundraising (Generated)
- Charitable
- Governance
Restating of comparatives will be required where the structure of SOFA reporting changes.
INCOMING RESOURCES
1. From Generated Funds: (121 to 142)
|
|
Donations and legacies
Some grants (core funding or of general nature)
Subscriptions and sponsorships which are in substance donations
Gifts in kind and donated services |
|
|
Events
Sponsorship and lotteries
Charity shops
Ancillary trades |
|
|
Dividends, interest, rents
Payments from subsidiary undertakings (in holding charity's own SOFA) |
2. From Charitable Activities: (143 to 146)
- Fees, subscriptions, charges (primary purpose trading)
- Grants
|
3. Other: (147)
- Profits on sale of fixed assets
SOFA
RESOURCES EXPENDED
1. Cost of Generating Funds: (178 to 187)
- Cost of generating voluntary income
|
- Cost of fundraising trading
|
- Investment management costs
|
2. Charitable Activities: (108 to 209)
- List of activities, relevant to each charity
|
|
|
3. Governance Costs: (210 to 212)
- Audit, legal advice for trustees, costs associated with constitutional and statutory requirements.
|
- Associated support costs, if material
|
4. Other Resources Expended (213)
ACCOUNTING ISSUES
FRS21: POST BALANCE SHEET EVENTS (App.2 FRS21)
|
Gift Aid Payments |
|
In order for a post year-end gift aid payment to be included in the accounts, a legal or constructive obligation to make the payment should exist at the balance sheet date.
This could be achieved by the trading subsidiary minuting a decision prior to its financial year-end that it will pay its holding company to charity an amount equal to its profits on which it will pay tax. |
|
This minute should be sent to its holding company charity thus creating a constructive obligation for the charity. |
|
Once the profits are finalised, the amount to be paid can be calculated. This calculation is simply refining the estimate of the pre-existing obligation. |
|
Designated Funds |
|
|
As designation of unrestricted funds is an internal decision within the charity with no obligation to a third party, it falls outside the scope of FRS21. |
|
|
Designation may therefore continue to be made either before or after the balance sheet date. |
|
|
SORP 2005 suggests, however, that it may be regarded as best practice to make designations by the balance sheet date and, if required, to adjust the amounts of such estimated designations after the balance sheet date. |
ACCOUNTING ISSUES
FREERESERVES (Glossary GL51)
|
This definition of free reserves has changed slightly from SORP 2000. |
|
|
Designated funds are now not automatically deducted to arrive at the free reserves figure. The calculation is now made as follows: |
|
Total Reserves |
|
X |
|
Less: |
Permanent endowment funds |
X |
|
|
Expendable endowment funds |
X |
|
|
Restricted funds |
X |
|
|
Income funds which could only be realised by disposing of fixed assets for charity use |
X |
|
|
Income funds which could only be realised by disposing of performance related investments |
X |
|
|
|
|
(X) |
|
Basic definition of free reserves |
|
X |
|
Then consider whether to: |
|
|
|
Add: |
Expendable endowments readily available for spending |
|
X |
|
Less: |
Unrestricted funds designated for essential future spending |
|
(X) |
|
Final figure of free reserves |
|
X |
ACCOUNTING ISSUES
|
INCOME RECOGNITION (94 to 117)
|
|
A charity may receive income under contracts or grants which have specific service requirements which relate to the delivery of certain services or actions.
Income received from such sources should be deferred (i.e. treated as a creditor not as unspent funds carried forward) to the extent that the charity has not delivered all the services relating to the funding. |
|
|
|
SUPPORT COSTS (164 to 176)
|
|
Support costs are no longer a separate category on the face of the SOFA.
Such costs should be allocated to appropriate categories within costs of generating funds, charitable activities and governance costs.
The allocation of support costs should be disclosed in the notes by detailing the figures or by giving the method and percentage basis for the apportionments. |
|
|
|
GRANTMAKING CHARITIES (195 to 209)
|
|
Grants should be disclosed by their purpose to tie in with the activity based approach to reporting.
Details of grants to particular institutions should be given when the total value of grants to that institution are material in the context of that year's grantmaking. |
|
|
|
GROUP ACCOUNTS (397)
|
|
An entity only SOFA is required or alternatively entity only results may be set out in a note to the accounts (see note 4 to the accounts of Arts Theatre Trust Limited, one of the CC's example accounts as noted in the CC Guidance section of these notes)! |
CHARITY COMMISSION GUIDANCE
From the home page, (www.charity-commission.gov.uk) click on 'Charities Accounts and Reports', then SORP 2005. A long list of documents, the most useful of which are:
- The Charities SORP 2005.
- The changes between SORP 2000 and SORP 2005 - only 8 pages long, a good summary.
- Tracked copy of SORP 2005 - good idea, but hard to read.
- Example Accounts SORP 2005 - six examples. More examples are being prepared, including small charities below the audit threshold.
|
