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Reporting & Accounting Guidance For Small & Large Charities

On the 28 January 2014 the Charity Commission and the Office of the Scottish Charity Regular (OSCR) published guidance to help trustees of charitable companies comply with new reporting requirements. This guidance can be accessed here: http://goo.gl/UcpaVq

The new reporting requirements come into effect for year ends from the 30 September 2013 onwards. The change applies to charitable companies that are either medium or large, as defined under the Companies Act 2006. These charities are now required to prepare a strategic report which replaces the business review in the Trustees Annual Report.

Does this affect me?

This change impacts charitable companies that are medium or large. If your charity has breached two of the three thresholds for two consecutive years, the charity is not small and therefore needs to prepare a strategic report. Non-corporate charities such as Trusts or CIOs will not be affected by this change.

What is the change?

The regulations amend the Companies Act 2006 to insert new sections which set out the duty to prepare the content of a Strategic Report and delete the sections that dealt with the business review.

The regulations also amend the Companies Act 2006 to substitute the option to send summary financial statements to the members with an option to send the Strategic Report and supplementary material.

The main change required is that all companies (that are not small) now need to prepare a Strategic Report which must contain:

  • A fair review of the company’s business; and
  • A description of the principal risks and uncertainties facing the company.

The review should be balanced, comprehensive and consistent with the size and complexity of the charity. It must cover:

  • The development and performance of the charity during the financial year; and
  • The position of the charity at the end of the year.

The Strategic Report is also a separate report in its own right and requires separate approval by the trustees in their capacity as directors. If the report is presented as a separate document to the Trustees Annual Report a statement must be included in the Trustees’ Annual Report confirming that the information required by the Companies Act is included in the Strategic Report.

However, as nearly all of the information required by the Strategic Report is already required to be included within the Trustees’ Annual Report under SORP 2005, the Charity Commission suggests that the Strategic Report can be included within the Trustees’ Annual Report as a separate section headed Strategic Report. In this scenario in approving the Trustees’ Annual Report, the trustees must include a clear statement that they are also approving the Strategic Report in their capacity as company directors.

If the option to include everything in one statement is taken there will be a re-ordering of the Trustees’ Annual Report so that the Achievements and Performance, Plans for Future Periods and the Financial Review will all be subsumed within the new Strategic Report section, as will the section on Risks and Uncertainties previously included within the Structure, Governance and Management section.

The layout of the Trustees’ Annual Report will therefore look like the following:

  • Reference and administrative details of the charity, its trustees and advisors
  • Structure, governance and management
  • Objectives and activities
  • Strategic Report which includes
  • Achievements and performance
  • Financial review
  • Plans for future periods
  • Principal risks and uncertainties
  • Funds held as custodian trustees (if applicable)
  • Very little additional material needs to be included but this is now mandatory under The Companies Act rather than recommended under the Charities SORP.

For further information on the issues raised here, please email Richard Snelling at rsnelling@menzies.co.uk

Read Menzies full report.

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