Guest blog: The changing face of transparency - Nigel Davies
Nigel Davies, Joint Chair of the SORP Committee, recommends that funders engage in a debate that promises to reshape charity reporting.
Promoters of the compliance view of reports and accounts pose this challenge to me: who do you expect to read the report and accounts? At the Commission we know that we are not alone in using charity accounts; indeed funders, the media and other stakeholders use charity reports and accounts as an essential source of information about what a charity does, how it spends its money and what difference it claims to make. However the trustees’ annual report and accounts are not prepared with the charity regulator in mind.
The Financial Reporting Council (FRC), which is the accounting body that oversees the charities SORP, is very clear as to who the intended reader is: “The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs”. You, the funders, are viewed as the key audience.
The report and accounts are unlikely to be your sole source of information. Major donors to the sector often demand more from the recipient where this is considered necessary by the trustees to provide assurance over the use to which the grant funding is put. That said the reports and accounts offer you standardised information and we find in our regulatory work that poor quality reports and accounts often speak volumes. We find an association between late filing and poor accounts and those charities suffering significant governance problems.
With public trust and confidence in charities having recently taken a knock, there is an opportunity to reshape the form and content of the trustees’ annual report to enhance sector transparency and rebuild trust and get the assurance you need. The Charities SORP-making body, the Commission and the Office of the Scottish Charity Regulator, has a SORP research consultation underway.
A range of ideas are being debated including requiring key facts, accounting ratios, enhanced disclosure of risk and executive pay, the differentiation of capital investment and identifying who funds a charity. Please refer to www.charitysorp.org for more information. This consultation closes on 11 December. The question for us is do funders care strongly enough to take part?
Joint Chair of the SORP Committee
ACF is seeking members' feedback to inform a response to the consultation. See here for more information.