Accounts are prepared to inform decision-making and to enable stakeholders to understand the stewardship exercised by those charged with the governance of an organisation.
Accounting standards and the charities Statement of Recommended Practice exist to ensure that the financial effects of transactions are recognised, measured and presented in a consistent and comparable manner. Audit exists to provide assurance that the financial information presented is reliable and reflects the underlying financial transactions and financial position of the organisation. To me, this sounds like a good model of accountability and assurance for the stewardship of charitable funds.
Unfortunately, I occasionally meet a trustee or a senior member of a charity's finance staff who seems to perceive preparing and filing accounts as of marginal relevance to their charity's accountability. The fact that people think this way might well be reflected in the fact that 15 per cent of charities still file their accounts late with the Charity Commission.
So it was good to see the Directory of Social Change recently reminding trustees of the importance of filing accounts with the commission on time. It was also encouraging that the DSC's research indicates that 53 per cent of grant-making charities now check a charity's filing history as part of their procedures before awarding grants. It would be even better if that check was carried out by all grant-making charities.
Sometimes I also hear a defence of poor levels of financial reporting framed in the following terms: "Well, nobody, apart from regulators, is interested in our accounts anyway." Those Third Sector readers who read the commission's response last year to Lord Hodgson's "call for evidence" in his review of the Charities Act 2006 will know that this type of assertion is false.
Our response to Hodgson pointed out that in 2011 there had been 6.28 million hits on the commission's web pages that offer "summary financial information" about a charity and that 910,000 of those visits then went on to the "view accounts" web pages on the commission's register. That is more than 100 clicks to view accounts for every single hour of every single day of the year. It seems to me that there are more people than you might imagine who are interested in how charities use their funds.
For the financial reporting framework to function as intended, trustees need to be willing to report transparently and recognise that true and fair reporting might sometimes mean more than simple compliance. The auditing profession must also retain a questioning mind and an awareness of its duty to report matters of regulatory concern.
Finally, we need to be sure that the reporting framework provides relevant and useful information that will help donors and others to make informed decisions. The current Sorp consultation provides an opportunity for you to tell us what financial information you think it is important to provide in accounts and why. Login at www.charitysorp.org and tell us what you think.
Ray Jones is policy accountant at the Charity Commission