The long-awaited update bulletin to the Sorp has been issued, meaning that charity accounts can be kept in line with UK accounting standards. There are three groups of changes: clarifying amendments; significant changes; and other changes. Actually, none of the changes are particularly earth-shattering, but some will be more significant than others.
The clarifications cover the need for more comparatives in accounts, treatment of Gift Aid from subsidiary companies and the need to be more precise in how fixed assets are written off, such as by component, not in general terms. The point that has caused most excitement is the need for charities’ subsidiary companies to put in place deeds of covenant. This is a regrettable throwback to the days before Gift Aid and is a sad example of industrialising something that is of only marginal importance. However, creating such a deed is not complicated and there are precedents publicly available that should resolve the issue. Charities with December year-ends should sort this out quickly.
The other changes take effect from 1 January 2019, typically for December 2019 year ends. The main issues to consider include mixed-use properties, an extra cashflow note, properties rented within a group, accounting for mergers and what sort of charity might constitute a financial institution.
Making Tax Digital
Making tax digital for VAT continues to be a concern. MTDfV will introduce the requirement for virtually all VAT-registered businesses to keep digital records and file their VAT returns through functional and compatible software. HM Revenue & Customs had previously announced that MTDfV would apply to all businesses, including charities, from 1 April 2019.
However, in a significant development this month, HMRC announced a partial deferral of the start date for MTDfV. The deferral is for only six months, until 1 October 2019, to allow further software testing to take place. The list of "complex businesses" to which the six-month deferral will apply includes some important categories for charities: trusts; not-for-profit organisations that are not set up as companies; VAT groups; those required to make VAT payments on account; and VAT annual accounting scheme users.
There is therefore still no blanket exemption for charities, but now some will at least be able to defer the pain for six months.
Audit quality continues to make the news after the well-reported high-profile problems recently reported in the corporate sector. The topic has generated a number of formal reviews and suggestions for how audits could be improved.
A quick survey of the past month’s comments from market commentators and regulators includes the following: the simplification of accounting standards; enforced quotas in public markets; reducing the concentration of audit firms in some areas; the separation of consultancy work from audits; clarifying the purpose and scope of audit in the modern marketplace; auditors being required to report explicitly on companies’ future prospects; more external quality reviews; and a need for firms to focus more on "thoroughness, trust and integrity".
The charity regulators have themselves put pressure on auditors and examiners to be more proactive in meeting their reporting obligations, so audit committees and treasurers in charities might want to monitor these developments and consider whether there are lessons to apply to the charity sector.
The Independent online newspaper reports that HSBC bank has collaborated with children's author Emma Dodd to publish a fairy tale designed to help children better understand finance. The book, called Fairer Tales: Princesses Are Doing it for Themselves, tells of Cinderella starting a business, Sleeping Beauty having her savings grow while she sleeps and Rapunzel redeveloping the tower with a bank loan. One wonders what the equivalent would be for charities. Alice's Adventures in Wonderland, perhaps?
Don Bawtree is lead partner for charities at accountants BDO LLP