Receipts and payments accounts may not be as user-friendly as they seem
September 2008
Under the Charities Act 1993, all charities, no matter how small, must publish annual accounts, but charities with incomes up to £100,000 are allowed to use the R&P basis, rather than having to produce accounts complying with the Charities SORP.
A three-year research programme, undertaken by Professor Gareth Morgan, director of the Centre for Voluntary Sector Research at Sheffield Hallam University, investigated the effectiveness of the R&P regime as compared to the SORP regime for this group. The study included two surveys – one of charity accountants and independent examiners (undertaken through ACIE) and one of funders who use charity accounts in grant-making decisions (though the Association of Charitable Foundations).
The main finding was that there is a very wide range of views on the R&P regime, both among independent examiners (IEs) – who have the task of scrutinising charity accounts below the audit threshold – and among funders (see also page 6, Caritas Issue 6, May 2008). This range of views is shared by professional accountants and by non-accountants. Some feel that the R&P basis is clear and effective – others have serious concerns and believe that even the smallest charities should be required to produce SORP accounts.
It was clear that part of the difficulty with R&P accounts relates to the lack of any regulations on what R&P accounts for charities in England and Wales should contain – however, clear regulations apply for R&P accounts in Scotland, and the recent Charity Commission publication CC31 indicates that the Commission is happy to accept R&P accounts which follow the Scottish rules.
The report argues that the R&P regime is not flawed, but needs additional investment and attention to make it work. In the long run, it argues for an amendment to the Charities Act 1993 so that regulations can be made for R&P accounts in England and Wales, but in the meantime it proposes the creation of a formal standard for R&P accounting by charities, with the support of the main accountancy bodies, which would have similar standing to the Charities SORP. It also calls for more investment by the Charity Commission in support of the R&P regime, and for more training on the regime both for accountants and for those directly involved in the sector. The report also argues that the proposal from the Charity Commission to increase the R&P upper threshold from £100,000 income to £250,000 should be put on hold, as the lack of confidence in the R&P regime could lead to charities in this band losing out on funding.
Professor Morgan told Caritas: ‘This research raises major questions on the operation of the regime, especially the proposal from the Office of the Third Sector, and endorsed by the Charity Commission, to increase the threshold for R&P accounting for charities in England and Wales from £100,000 to £250,000. The study argues that any such increase should be put on hold until more is done to support the R&P framework. In particular, given that around 80 per cent of charities use R&P accounts and only 20 per cent follow SORP, I am calling for the creation of an accounting standard, similar in concept to SORP, but specifically for charity accounting on the R&P basis, with formal endorsement by the accountancy profession.’
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