Category: Financial Reporting Standards

SORP adoption in Ireland

SORP or SORP-ish?

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Most people in the nonprofit sector are by now aware of Charities SORP.  This is a standard for financial reporting specifically devised to make the financial transactions of charities more transparent especially in terms of how and where charities have raised their funds and how the funds have been used.

Adoption of charities SORP is promoted as best practice by sector leaders and it forms one piece of the “Triple Lock” standard.  This is seen by the Charities Institute of Ireland as fundamental to restoring trust in charities (the other two elements of the triple lock are the Governance Code and the Statement of Guiding Principles for Fundraising).

Benefacts is the only source of information about which charities use the SORP standard in Ireland, where its adoption is still voluntary.  The Charities Regulator will be coming out soon with a mandatory financial reporting standard for Irish charities, generally expected to follow the FRS 102 Charities SORP quite closely.

By reviewing what all charities actually report in their annual published financial statements, Benefacts is able to provide a detailed picture about the emergence of higher reporting standards, which has never been available before now.

Currently, 488 organisations in the Benefacts database of Irish nonprofits say that they follow the charities SORP reporting standard. But on closer inspection, 87 of these have chosen to adopt some of the features of SORP and only 401 can in fact be seen to be fully in compliance in terms of the accounting policies as specificied by the SORP-making body authorised by the Financial Reporting Council (FRC).  Benefacts has used this compliance standard as verified by the entity’s auditors as the benchmark for reporting Charities SORP compliance in the future.

Interestingly, a handful (17) of nonprofits that have adopted Charities SORP are not yet publicly registered as charities in Ireland.

In 2015, the total number of SORP reporters whose accounts are publicly accessible represented 9% of all registered charities. Here’s the list.  We’ll report on trends in SORP adoption again in our 2018 Sector Analysis Report.

Benefacts.ie is the only source of up to date analysis of all nonprofits (charities or otherwise) adopting the three standards (SORP, Governance Code and Statement of Guiding Principles for Fundraising). Use the facets on the left-hand side of the Benefacts search results screen to select which reporting standard you’re interested in – see image for example.

Benefacts Perspectives: Richard Dixon on why transparency matters for charities

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Welcome to Benefacts ‘Perspectives’ blog series. We’ve asked a group of thought leaders from the nonprofit sector and beyond to pick a finding from our 2017 Nonprofit Sector Analysis report, and develop it with reference to their own direct experience. We’ll be sharing their insights and reflections with you over the next few months.

“Notwithstanding the public demand for transparency, more than a quarter of non-profit companies chose in 2015 to publish abridged financial statements.” #BeneFACTS17

Richard Dixon, Chair of Charities Institute Ireland, wonders what’s going on.

There’s a pincer movement in charity reporting.

At one end, the number of charities publishing to the gold standard – Statement of Recommended Practice or SORP for charities – has increased to just under 400 (out of 8,000 or so charities, of which half are registered as companies). SORP is mandatory for charities in England, Wales and Scotland but remains optional in Ireland. A disproportionate number of the charities that publish to SORP standards in Ireland are those that generate funds outside of the jurisdiction: 40% of international aid organisations reporting in Ireland use charities SORP. In most other sectors, only about 10% choose this higher standard.

At the other end of the disclosure scale, there’s an increasing number of organisations who’ve chosen to publish abridged accounts, with the latest analysis showing that nearly a quarter of charities who have company registration choosing this route (a three-fold increase over the last couple of years).

First things first: any small company, including charities, is allowed to file abridged accounts. This means even though the company has adopted a full set of financial statements, they are allowed under company law to file a summary (little more than the balance sheet, the names of the directors, and the audit opinion) when they send it to the Companies Registration Office for publication. What’s missing is information about the income and expenditure – this means the reader gets only limited information about their financial profile.

But while they might be allowed to do this, you’d wonder why they would choose to.

Notwithstanding unprecedented public and media interest in accountability and transparency, in 2015 the boards of almost 1,000 charities deliberately chose to ignore one of the more obvious tactics at their disposal which would address issues around public confidence.

The preparation of an annual report, including a narrative on performance, sources of income and, for instance, details on governance arrangements, is an incredible opportunity to influence public opinion and inspire trust.

And I would have a personal (but yet to be investigated) proposition that there is a strong correlation between charities who assume the highest standards (CII’s Triple Lock approach to reporting, fundraising standards and governance standards for instance) and public confidence, income and, ultimately, impact.

Where’s the Charities Regulator in all of this? Thankfully, crystal clear – new reporting standards will ensure that all charities will be obliged to report to minimum standards – standards in excess of those required by abridged accounts. It can’t come quick enough.

Richard Dixon is Chairman of the board of the Charities Institute Ireland. He has more than 20 years of experience working in the nonprofit sector in Ireland, currently serving as Director of Public Affairs with Concern Worldwide.

Read Benefacts Nonprofit Sector Analysis 2017

Financial Reporting by Irish Nonprofits

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Why have some nonprofits chosen to adopt Charities SORP as a reporting standard when it isn’t yet mandatory in Ireland? And what is Charities SORP anyway?

Financial reports are a universally accepted way of assessing the health and well being of a company.  Financial reporting standards are mandated in law (the Companies Act, 2014), and provided by the Financial Reporting Council (FRC) for the UK and Ireland.

Financial reporting gives business owners an account of the use of their funds showing movements in the value of the assets, the cost of sales and any profit from activities.  Nonprofit companies also have to provide an account of the business but face unique challenges.  Rather than shareholders, they have stakeholders.  Nobody owns the assets – the nonprofit company sets out how these assets have been used to realise the best interests of the company’s beneficiaries or purposes.

Devised by a specialist Committee established by the FRC, the Statement of Recommended Practice (or SORP) for Charities provides a structured way for charities to provide an account of their business.  The Charities SORP provides information in a way that reflects the particular characteristics of charities.

Meeting the needs of stakeholders

As well as the usual measures of financial performance, the trustees of a charity need to provide a much greater level of analysis to stakeholders.  This covers:

  • How the charity deployed its resources in the course of the year to meet the needs of beneficiaries and other stakeholders (set out in the Trustees’ narrative report)
  • What were the charity’s sources of income and was any of it restricted to a particular purpose or purposes
  • How much of the charity’s funds were spent on charitable purposes, and how much on other costs (like governance overheads or fundraising costs)
  • The remuneration profile of higher-paid staff
  • How the charity is safeguarding its assets

Voluntary or  Mandatory?

Even though the SORP for charities is not yet mandatory in Ireland, it is already used by 325 Irish charities on a voluntary basis.  It is strongly recommended by lead agencies like Charities Institute Ireland, Carmichael Centre and The Wheel.

It’s widely expected that the Charities Regulator will soon mandate Charities SORP for charities in Ireland, meaning it will no longer be a voluntary standard.

For this reason, charities in Ireland should take a particular interest in the current round of consultation being led by the FRC Committee on Charities SORP, which includes three participants from Ireland.

The Committee are currently seeking views on suggestions to improve the Charities SORP – the closing date for submissions is December 11th.

For further details on financial reporting for this sector, or to learn more about individual organisations, explore our database here.

 

What price accountability in the nonprofit sector

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Benefacts’ office is very busy these days because the period between September and December is when 75% of Irish nonprofit companies are required to file their annual financial statements. That’s because most have a financial year-end of 31st December. Companies are allowed nine months to prepare and adopt their accounts, have them externally audited, and present them to an annual general meeting of their members before filing them with the Companies Registration Office, which is where Benefacts gets them – they are public documents.

Audited financial statements are an extremely important source of data in the Benefacts Database of Irish nonprofits, because they have been verified as providing a true and fair view of the organisation’s finances. Benefacts uses them to find details of a nonprofit’s income, expenditure, assets and liabilities, as well as information about the numbers of employees, payroll costs, and other information of wide public interest.

So far, our team of financial analysts have digitised the contents of the 2015 financial statements for almost 5,000 nonprofits: our plan is to release the full set for 2015 in a major update to the database which will be published in Spring 2017.

A new trend that has given us cause for concern is the high number of nonprofits – including many that rely on public finding – which have elected to provide just a summary of the financial statements, in the form of “abridged” financial statements. Others have chosen to file accounts that have not been audited. Until last year, companies limited by guarantee were not permitted to file abridged or unaudited financial statements, but when the Companies Act 2014 made the reporting threshold for smaller companies available to all companies (including not-for-profit ones), many chose to take advantage of this. This means Benefacts is not able to present an analysis of their finances, and we report this on their Benefacts listing.

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In fact, compared to this time last year, we have seen a four-fold increase in the number of nonprofits filing abridged accounts.  As we write this, in excess of 20% have filed abridged accounts. This means that the company has chosen to put only very limited information about their income and expenditure in the public domain.

More positively, at the other end of the disclosure spectrum, about 5% of all nonprofits (9% of registered charities) have voluntarily elected to adopt best practice standards in financial reporting – the charities statement of recommended practice (or SORP). See below for a list of nonprofits that adopted the Charities SORP for their 2014 financial statements.

Advocates for greater transparency in charity accounting – including the incoming CEO of the Charities Institute of Ireland Lucy Masterson and the Charities Regulator John Farrelly – have encouraged charities that receive public funding to adopt the highest standards of public disclosure in publishing their annual accounts, and in fact a recent call for submissions from the Regulatory Authority, invites interested members of the public to comment on proposed new public reporting standards. Click here to review Benefacts’ own submission.

Tune in next week when we’ll be taking a closer look at SORP and some other current initiatives in this area.

 

Nonprofits that Adopted Charities SORP in 2014