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.