The Regulator for Charities in England and Wales

CC61 - Charity Accounts: The framework

(Version October 2002)

This guidance should only be used by charities preparing accounts under SORP 2000 and the 2000 Regulations - charities preparing accounts for accounting periods beginning on or after 1 April 2005 should refer to our revised website guidance Charity Accounts: The framework (1995) which reflects the SORP 2005 framework.

Contents

What is this guidance about?

1. This guidance outlines the revised accounting framework for charities in England and Wales. The framework incorporates developments in accounting standards and is the outcome of a review of the previous SORP and of the related Regulations (see paragraph 3 below).

2. The revised framework covers:

  • the maintenance of accounting records;
  • the preparation of charity accounts and Annual Reports;
  • the audit or independent examination of accounts;
  • the submission of accounts, Annual Reports and Annual Returns to the Charity Commission, within appropriate time limits ; and
  • the availability of accounts to the public.

3. There are three major influences on how charities report and are regulated:

  • The minimum requirements for all charities (other than charitable companies) in terms of the records to be kept are set out in the Charities Act 1993.

  • Every charity must also comply with the legal requirements for the preparation of accounts and reports. In the case of some categories of charity (for example, charitable companies or those registered social landlords which are exempt charities) these requirements will be set out in legislation appropriate to that type of organisation. Charities which are not covered by specific legislation must comply with the requirements set out in Part VI of the Charities Act 1993 and, where appropriate, the related Accounts and Reports Regulations issued in 1995 and 2000 ("the Regulations").
  • SORP 2000 explains how charities whose accounts must show a true and fair view should prepare their accounts. An exception to this is charities for whom a specialist SORP exists.

Aim of the framework

4. The framework is designed to meet the need for consistent and transparent public accountability for the resources held by charities without adding unnecessarily to the burden on trustees. That is why the requirements to be met by smaller charities are less than those for larger charities.

Meaning of words and expressions used

5. In this guidance:

The 1993 Act is the Charities Act 1993.

The Annual Report is a concise but comprehensive review of the activities of the charity prepared by the trustees for each accounting year. The Regulations set out the basic requirements and more detailed guidance is given in SORP 2000. The requirements of the regulations, including simplifications for charities with an annual income of £250,000 or less, are set out in Appendix 1.

The Annual Return must be completed and submitted to the Commission by trustees of registered charities with a gross income or total expenditure for the year of over £10,000. It helps us to monitor charities.

Audit, for the purposes of the requirements of Part VI of the 1993 Act, is the scrutiny of accounts by a registered auditor who must apply accounting standards in accordance with Audit Practice Note 11 produced by the Auditing Practices Board. A registered auditor is one registered with a recognised supervisory body in accordance with the Companies Act 1989. In some charities, eg those connected with the NHS or local authorities, alternative auditing arrangements may be possible.

A charitable company means a company:

  • formed and registered under the Companies Act 1985; or
  • to which the provisions of the 1985 Act apply as they apply to a company so formed and registered; and
  • which is established for exclusively charitable purposes.

The Register Check Form is a form that allows us to collect factual information about the charity to enable us to keep the Register of Charities up to date. It is a convenient method of trustees discharging their obligation to keep the Commission informed of changes to the Register.

Exempt charities are charities that the 1993 Act exempts from a number of its provisions, including registration with the Commission. An exempt charity will normally follow specific accounting and reporting requirements directed by or under some statutory provision which specifically relates to it: if there is no such provision, it will follow the requirements of s.46(1) of the 1993 Act.

Excepted charities fall into three main groups:

  • charities excepted by Order or Regulation;
  • very small charities (income of £1000 a year or less and having no permanent endowment and no use or occupation of land); and
  • registered places of worship (the place of worship only, not other charities in connection with them).

Excepted charities are subject to the accounting and reporting requirements of the 1993 Act where appropriate, but they are not required to register with the Commission.

Independent examination is a less onerous form of scrutiny than an audit. Examiners report whether specific matters which are identified in the 1995 Regulations have come to their attention. The 1995 Regulations (some parts of which are still in operation alongside the 2000 Regulations) set out the required contents of the examiner's report. We have issued guidance to trustees on the selection of examiners and directions for examiners on carrying out an examination (Independent Examination of Charity Accounts: Directions & Guidance Notes - CC63).

Non-company charities are charities which are not charitable companies (see above). Examples include trusts, unincorporated associations, and also corporate bodies which have been incorporated by means other than under the Companies Act 1985 (eg by Royal Charter).

Permanent endowment is property of the charity (eg land, buildings, cash or investments) which the trustees may not spend as if it were income. It must be held permanently, sometimes to be used in furthering the charity's purposes, sometimes to produce an income for the charity. The trustees cannot normally spend permanent endowment without our authority. The terms of the endowment may permit assets to be sold and reinvested, or may provide that some or all of the assets are retained indefinitely (eg a particular building).

Must or need are used to refer to actions that trustees, or their agents or employees, are obliged to take by law.

Where we use terms such as the trustees should or we suggest, recommend or advise we are referring to actions which the trustees, their agents or employees could take and which we consider to be good practice, but which are not legal requirements.

Basis of preparation of accounts

6. There are two bases on which charity accounts may be prepared: the receipts and payments basis and the accruals basis. Briefly:

  • Accounts prepared on the receipts and payments basis consist of an account summarising all money received and paid out by the charity in the year in question, and a statement giving details of its assets and liabilities at the end of the year. This is the simpler of the two bases and may be adopted where a non-company charity has a gross income of £100,000 or less during the year.
  • Accounts prepared on the accruals basis contain a balance sheet showing the charity's financial position at the end of the year in question, a statement of financial activities (SOFA) during the year (and sometimes an income and expenditure account) and explanatory notes. Such accounts for charities are normally required, in accountancy terms, to show a "true and fair view". Non-company charities with gross income over £100,000 during the year and all charitable companies must prepare their accounts on the accruals basis.

What is required?

7. There are some basic requirements that apply to all charities. These are set out in paragraph 10. There are also additional requirements depending on the income or expenditure of the charity - broadly, the bigger the charity the greater the requirements. The precise details depend on the type of charity. In addition there are special requirements for certain types of charity, especially:

8. If you are unsure which case applies to your charity, or if it is a special case not covered by this guidance, our Contact Centre staff (on 0845 300 0218) will be happy to answer your questions.

9. The charity's governing document may also contain specific rules on accounts, reports and auditing. Where these are more onerous than the requirements set out in this guidance, the trustees must follow the requirements set out in the governing document, or else amend the governing document first. Paragraphs 20-21 cover this in more detail.

Requirements for all charities

10. All charities must:

  • Prepare and maintain accounting records. These records (cash books, invoices, receipts etc) must be retained for at least six years (at least three years in the case of charitable companies).
  • Prepare accounts.
  • Make the accounts available to the public on request. This is vital underpinning to the principle of public accountability, and must be complied with in all cases. It is open to trustees to make a reasonable charge to cover the costs of complying with the request (eg photocopying and postage). As a matter of good practice we recommend that a copy of the charity's Annual Report should, wherever possible, be sent with the accounts.

11. All registered charities will receive a Register Check Form from the Commission. Although trustees are not required to complete and return this, doing so will meet their legal obligation to keep the Commission informed of any changes to the Register.

Requirements for registered charities that are not companies

Neither gross income nor total expenditure over £10,000 in the charity's relevant financial year

12. Within this band, the various requirements are as follows:

  • basis of preparation: accounts may be prepared on either the receipts and payments or the accruals basis - if the latter, they must be prepared in accordance with the Regulations;
  • external scrutiny: there is no requirement to have the accounts independently examined or audited, unless the charity's governing document stipulates it, but we have the power to require an audit in exceptional circumstances. The only other exceptions to this are for charities which:
  • have an income of less than £10,000 but whose total expenditure exceeding £250,000 in the same year; or
  • have an income of less than £10,000 in the year for which accounts are being prepared but which in either of the two previous financial years have had a gross income or total expenditure exceeding £250,000.

In these circumstances, an audit by a registered auditor must be carried out;

  • type of Annual Report: an Annual Report must be prepared but it may be simplified (see paragraph 6);
  • information to be sent to the Commission: an Annual Return is not required and the charity should not send us a copy of their Annual Report and accounts unless we ask for them.

Gross income or total expenditure over £10,000 (but gross income not over £100,000) in the relevant financial year

13. Within this band, the various requirements are as follows:

  • basis of preparation: accounts may be prepared on either the receipts and payments or the accruals basis - if the latter, they must be prepared in accordance with the Regulations;
  • external scrutiny: accounts must be subject to outside scrutiny but trustees may choose either independent examination or audit by a registered auditor, unless the charity's governing document stipulates one or the other (also, we have the power to require an audit in exceptional circumstances). The exception mentioned in paragraph 12 with regard to the £250,000 threshold also applies to charities in this income band and in these cases an audit will be required by a registered auditor;
  • type of Annual Report: an Annual Report must be prepared but it may be simplified (see paragraph 6); and
  • information to be sent to the Commission: an Annual Return and the charity's Annual Report and accounts must be sent to us normally within 10 months of the end of the charity's financial year.

Gross income over £100,000 in the relevant financial year

14. For charities falling within this band:

  • basis of preparation: accounts must be prepared on the accruals basis in accordance with the Regulations;
  • external scrutiny: accounts must be subject to outside scrutiny but trustees may choose either independent examination or audit by a registered auditor, unless the charity's governing document stipulates one or the other - if an independent examination is chosen then the Commission recommends that the examiner is a qualified accountant (also, we have the power to require an audit in exceptional circumstances). The exception in paragraph 12 with regard to the £250,000 threshold applies and in these cases an audit by a registered auditor is required.
  • type of Annual Report: an Annual Report must be prepared but it may be simplified (see paragraph 6); and
  • information to be sent to the Commission: an Annual Return and the Annual Report and accounts must be sent to us normally within 10 months of the end of the charity's financial year.

Gross income over £250,000 in the relevant financial year

15. For charities falling within this band:

  • basis of preparation: accounts must be prepared on the accruals basis and in accordance with the Regulations;
  • external scrutiny: accounts must be audited by a registered auditor;
  • type of Annual Report: a full Annual Report must be prepared (see paragraph 6); and
  • information to be sent to the Commission: an Annual Return and the Annual Report and accounts must be sent to us normally within 10 months of the end of the charity's financial year.

Charitable companies

16. SORP 2000 applies to charitable companies as well as non-company charities.

  • A charitable company must prepare a directors' report and accounts under the Companies Acts and must file these with Companies House. The accounts must be prepared on an accruals basis.
  • The requirements for the Annual Report are same as those for other charities and therefore the charity must comply with the Regulations. In practice companies normally produce a directors' report and that report is expanded to contain all the information required to be included by the Regulations in the Annual Report.
  • If the charitable company's income or expenditure is over £10,000, the trustees must also send us an Annual Report (or and suitably modified directors' report), the accounts and its annual return.
  • 17. Charitable companies are required to have their accounts audited by a registered auditor if their gross income is over £250,000. However if the gross income is in the range £90,001 to £250,000, an audit exemption report may normally be prepared instead of a full audit report. If gross income is £90,000 or less, no external scrutiny is normally required.

Excepted charities

18. If the trustees have chosen to register they will have to fulfil the same accounting and reporting requirements as any other registered charity. If they do not register they must still produce annual accounts in the same way as a registered charity of the same type (company or non-company). They must provide copies of their accounts to members of the public on request, but should not send them to us unless we ask for them.

Exempt charities

19. Exempt charities have to keep proper accounting records and prepare accounts. Where they are required to prepare accounts giving a true and fair view, they should follow SORP 2000 in the preparation of those accounts, unless a more specialised SORP applies. They must provide copies of their accounts to members of the public on request.

The need for an audit or other external scrutiny

20. The governing document of any charity may contain specific provisions about the external scrutiny of the charity's accounts. In such cases the charity must follow whichever of the statutory framework and the governing document requires the higher standard of scrutiny.

21. In governing documents the word "audit" might be intended to cover a range of different types of external scrutiny from full audit by a registered auditor to an independent check by a non-accountant. Trustees will need to interpret the precise wording of the governing document. For example "audit by a bank manager" would not normally mean a full statutory audit. On the other hand "audit by a qualified accountant" suggests that a statutory audit by a registered auditor is required, even if the charity is small and is not required to have an audit by legislation. We recommend that trustees make a record of how they interpret the charity's governing document and consult the Commission regarding their interpretation.

Publications providing further help with preparing accounts

22. The following publications relating to the revised accounting regime have been produced by the Charity Commission. All are available on our internet site (www.charitycommission.gov.uk) or by phoning our Contact Centre on 0845 300 0218. All are free, but extra copies of SORP 2000 may be charged for.

23. There are also a number of commercial publications available that provide help on accounts.

Further advice

24. If you need any further advice you can call our Contact Centre staff, between 08:30 and 18:00 hours weekdays (0845 300 0218; minicom 0845 300 0219), who will be happy to help.

Appendix 1

Contents of Annual Reports of charities prepared for financial years beginning on or after 1 January 2001

All references are to Regulations contained in:

The Charities (Accounts and Reports) Regulations 2000 (SI 2000 No 2868) or to the Statement of Recommended Practice - Accounting and Reporting by Charities

Contents of all Annual Reports

Regulation
 Requirement
7(3)
 The financial year to which the report relates.
7(3)(a)
 A brief summary of the main activities and achievements of the charity during the year in relation to the charity’s objects.

7(4)(a)

The name of the charity as it appears in the register of charities and any other name by which it makes itself known.

Note: Excepted charities which are not registered should provide the name as set out in their governing document and any other name by which they are known.

7(4)(b)

The number assigned to it in the register and, in the case of a charitable company, the number with which it is registered as a company.

Note: Excepted charities which are not registered do not have a charity registration number.

7(4)(c)

7(5)

The principal address of the charity and, in the case of a charitable company, the address of its registered office.

Notes: The Charity Commissioners may dispense with the requirement to disclose the address of the charity if it could lead to any person being placed in any personal danger.

7(4)(d)

Particulars, including the date if known, of any deed or other document containing provisions which regulate the purposes and administration of the charity.

7(4)(e)

A description of the objects of the charity.

SORP 30(f)

Where applicable, details of any specific restrictions imposed by the governing document concerning the way in which the charity can operate.

SORP 30(e)

The names and addresses of other relevant organisations or persons including those acting as bankers, solicitors, auditor (or independent examiner or reporting accountant) or other principal advisers.
7(4)(f)
The name of any person or body of persons entitled by the trusts of the charity to appoint one or more new charity trustees, and a description of the method provided by those trusts for such appointment.

7(4)(g)

 

7(4)(h)

The name of any person who is a charity trustee of the charity on the date when the report is signed, and, where any charity trustee on the date is a body corporate, the name of any person who is a director of the body corporate on that date.

The name of any other person who has, at any time during the financial year in question, been a charity trustee of the charity.

7(5)

 

7(6)

Notes: The Charity Commissioners may dispense with the requirement to disclose the names of charity trustee(s)if it could lead to that person/(those people) being placed in any personal danger.


If the charity has more than 50 trustees then the names of not less than 50 trustees must be disclosed.

7(4)(i)

 

7(4)(j)

The name of any person who is a trustee for the charity (that is those holding property on behalf of the charity) on the date the report is signed.

The name of any other person who has, at any time during the financial year in question, been a trustee for the charity (that is those holding property on behalf of the charity).

7(4)(k)

A description of the policies (if any) which have been adopted by the charity trustees –

  1. for the purpose of determining the level of income reserves which it is appropriate for the charity to maintain in order to meet effectively the needs designated by its trusts;
  2. for the selection of investments for the charity; and
  3. for the selection of individuals and institutions who are to receive grants out of the assets of the charity.
SORP 30(g)
Details of any specific investment powers and their authority.

SORP 31(c)

A statement regarding the relationships between the charity and related parties and with any other charities and organisations with which it co-operates in pursuit of its charitable objects.
7(3)(c)
The report shall be dated and be signed by one or more of the charity trustees, each of whom has been authorised to do so.

Additional requirements for charities with gross income of more than £250,000.

Regulation Requirement

7(3)(b)

Instead of a brief summary of achievements and activities there should be:

A review of all activities, including:

  • material transactions, significant developments and achievements of the charity during the year in relation to its objects;
  • any significant changes in those activities during the year;
  • any important events affecting those activities which have occurred since the end of the year and any likely future developments in those activities;
  • where any fund of the charity was in deficit at the beginning of the financial year, the steps taken by the charity trustees to eliminate that deficit.
7(4)(l)
A statement regarding the performance during the financial year of the investments belonging to the charity (if any).
7(4)(m)
A description of the organisational structure of the charity.

7(4)(n)

A description of any assets held by the charity or by any charity trustee of, or trustee for, the charity, on behalf of another charity, and particulars of any special arrangements made with respect to the safe custody of such assets and their segregation from assets of the charity not so held and a description of the objects of the charity on whose behalf the assets are held.


(Revised July 2004)