The recent announcement by the Charity Commission and the Financial Reporting Council of a new taxonomy - a dictionary of tags used when filing accounts digitally - could eventually make it possible for charities to file their accounts digitally with both the commission and Companies House. The largest charities already submit corporation tax returns digitally to HM Revenue & Customs; the taxonomy ensures they are in line with the latest charity Statements of Recommended Practice.
Digital filing and the new taxonomy will allow charity accounts to be tagged using iXBRL, or Extensible Business Reporting Language, which the FRC says "helps users of financial information to extract relevant information from corporate reports and analyse it more efficiently". The iXBRL tagging system offers, in effect, an online shortcut to specific information in accounts and could help standardise accounting across the charity sector.
The commission has no plans to remove the existing PDF filing option, but says digital filing is quicker, easier and allows better analysis of sector trends and more effective regulation of accounts than other methods. Nigel Davies, head of accountancy services at the commission, says digital filing will be "an extra digital option for those who'd like to use it". The commission is now working with software developers on products that would allow charities to file digitally.
The commission hopes digital accounting will eventually mean that the 35,000 charities that file with both the commission and Companies House can do so simultaneously. The private sector can already do this with Companies House and HMRC, and 80 per cent of companies that file with Companies House do so digitally.
But there are concerns. Some national media and the True and Fair Foundation have been accused of misinterpreting charity accounts, and some charities fear tagging would render this more likely by making data more accessible without the necessary context. But others believe tagging can contextualise the raw data in charity accounts - by linking chief executive pay to remuneration policies, for example.
Some responses to a consultation on the new taxonomy, which closed on 8 December, cited fears about cost and confusion about the terminology. Charities that want to file digitally will also, for the time being, need to pay for the software, or pay accountancy firms to file for them. The response from Cancer Research UK claimed there is "not a strong appetite" for digital filing in the sector.
Peter Simons, head of future finance research at the Chartered Institute of Management Accountants, says charities cannot "stand in the way of this rising wave of digital technology", but the commission should ensure smaller charities are not burdened with extra demands on time and resources.
Companies House, the first registry in the world to introduce iXBRL filing, used free templates to encourage take-up by businesses, and a similar scheme could be used in the charity sector. Jack Mansfield, director of the accountancy profession at Companies House, said a template could make the filing process easier for charities and ensure they meet Sorp requirements. In the next few months, the commission is to engage with charities and partners such as Companies House about digital accounting and the benefits it offers.