Technical / SORP revisions lower charities’ threshold for more detailed accounts

Now that the NHS body’s annual report and accounts have been prepared, audited and submitted, it is time to turn to the preparation of the NHS charity trustees’ report and accounts. Thankfully, 2016/17 is a year of little change for most NHS charities. 

But some new guidance has been issued that is worth considering. In 2015/16 charities could choose which statement of recommended practice (SORP) to adhere to when preparing their accounts. They could either use the FRSSE version (Financial reporting standard for smaller entities) or the FRS102 version (the standard applicable in the UK and Republic of Ireland).

2016/17 is the first year that all charities must adopt the FRS 102 version. We do not think that any NHS charities adopted the FRSSE version of the SORP in 2015/16. But for any that did, 2016/17 will mean another restatement to apply the FRS 102 version. 

The plot thickens as Charities SORP (FRS 102) has itself been amended by Update bulletin 1, which is applicable from 2016/17, but which some NHS charities (except those in Scotland) may have adopted early in 2015/16. (See the HFMA briefing on 2015/16 year-end reminders for charities published in March 2016).

The update bulletin makes changes to the SORP in relation to donated goods and services, goodwill and intangible assets, impairment of goodwill and charity mergers – none of which are likely to be of interest to NHS charities.  However, two amendments will affect NHS charities. 

‘Larger charity’ redefined

The first is that it changes the definition of a larger charity. Previously it was the audit threshold (charities whose gross income exceeds £1m or whose gross income exceeds the accounts threshold and the aggregate value of its assets at the year-end is more than £3.26m). From 2016/17, larger charities are those with a gross income exceeding £500,000 (UK) or €500,000 (Republic of Ireland).

This means that many more charities will fall into the classification of a larger charity, which will require them to include more detailed information in their annual reports and more disclosures in their accounts. 

Statement of cash flows 

The second change is that only larger charities are required to prepare a statement of cash flows.  Previously, the Charities SORP (FRS 102) required all charities to prepare this statement which was a significant change from the old 2005 Charities SORP. For this reason, some NHS charities may have early adopted the update bulletin.

In April 2017, Information sheet 1 was published by the SORP-making body.  This does not amend the Charities SORP (FRS 102) but contains advice and clarification on the application of it.

The Information Sheet covers many issues – those of interest to NHS charities include:

• Reference to a new statutory requirement for charities subject to audit in England and Wales to disclose extra information on their fundraising practices.  Further information can be found in section 7.9 of the Charity reporting and accounting: the essentials November 2016
• A reminder that comparatives are required for the summary of assets and liabilities of each category of fund
• A reminder that governance costs must be apportioned to fundraising activities as part of the allocation of support costs
• Guidance on the treatment of funding ‘clawed back’ by funders
• Guidance on the treatment of employers national insurance contributions in employee benefit disclosures
• A reminder of the thresholds for accounts preparation and audit for charities in Northern Ireland.

National guidance 

The Charity Commission for England and Wales, the Office of the Scottish Charity Regulator and the Charity Commission for Northern Ireland have also issued guidance to auditors and independent examiners on matters of material significance reportable to them. This guidance is applicable to all audits or independent examinations that are conducted and/or reported after 1 May 2017.

In relation to the independent examination of charities, we understand that the Charity Commission will be issuing new directions to independent examiners over the summer. This may affect NHS charities that are subject to independent examination later this year.