The overall level of change being proposed in the Statement of Recommended Practice exposure draft is “overwhelming and potentially confusing”, charities have said.
A consultation on the latest Sorp draft concludes today and proposes changes including the introduction of a new three-tier reporting system based on charity income level.
The proposed tiers cover charities with annual gross incomes of up to £500,000, those with incomes from £500,000 to £15m and those above £15m.
Other changes include further demands around impact reporting, reserves, going concerns and volunteers, and the introduction of proportionate reporting for environmental, social and governance issues.
The Scottish Council for Voluntary Organisations said charities that took part in its engagement event, particularly small organisations, found the overall level of change being proposed to be “overwhelming and potentially confusing”.
“Charities will need to seek additional professional advice to navigate these changes, which will come with increased costs for already strapped organisations,” the SCVO said.
Charities engaging with the SCVO said many of the new requirements are complex, and therefore professional support will be required for many voluntary organisations to understand them.
The training and publishing charity the Directory of Social Change warned the timescale for implementing the new Sorp was “insufficient”, bearing in mind the “increased complexity” that it would bring to charity reports and accounts, even considering the new tiered system.
The DSC questioned the proportionality of impact reporting requirements, especially for charities at the lower end of tier two with incomes of just more than £500,000.
Jay Kennedy, director of policy and research at the DSC, said: “An income range of £500,000 to £15m for the tier-two requirements encompasses far too much difference in the complexity and risk levels of charities within it.
“Insofar as possible, the tiers need to be aligned with other proposed changes to thresholds in charity law recently under consultation.
“There is little sense in, for example, moving the audit threshold to £1.5m to account for the effects of inflation, while introducing tier two to commence after £500,000.”
The DSC has called for the Sorp to remove the sustainability reporting requirement for all but the largest charities, and align the tier-three threshold with ESG reporting requirements for UK businesses.
“While it may be a good thing for trustees to think about their charity’s sustainability and act accordingly, in most cases it will be ancillary to their core purpose,” the DSC said.
“For most organisations this risks becoming a box-ticking exercise which adds cost and complexity to annual reports but delivers little value in transparency terms.”
The Northern Ireland Council for Voluntary Action said it supported the move to three tiers but disagreed with the proposed thresholds, particularly the income range for tier two.
Nicva believes that the income threshold in tier one should be increased, the umbrella body said.
“The monetary levels in the tiers need to take account of current inflation as well as other consultations and proposals to raise the thresholds for auditing and independent examination, such as that happening in England and Wales,” Nicva said.
The umbrella body suggested a fourth tier for “micro charities” and highlighted that Northern Ireland does not have the charitable incorporated organisation structure available for charities.
“So any charity that wants the benefits of incorporation has to incorporate as a company limited by guarantee which then requires them to prepare accrual accounts which comply with the charities Sorp,” Nicva said.
“This is a considerable amount of work for a small charity that could otherwise be entitled to prepare receipts and payments accounts if it were a CIO.”
The Institute of Chartered Accountants of Scotland called for further action to ease the “overall accounting and reporting burden” placed on the sector.
Christine Scott, head of charities and reporting at ICAS, said: “Increasing the threshold for when a cashflow statement is required will ease the reporting burden on some larger charities, which is a positive step.
“This change would be even more effective if it were fully aligned with the equivalent exemption available to non-charities under FRS 102.
“However, the overall reporting burden on the sector will likely increase because of the combined impact of changes arising from the Financial Reporting Council’s Periodic Review of FRS 102, plus Sorp-only related changes.”
Nick Sladden, partner and head of charities at the audit firm RSM UK, said the proposed tier-one threshold of £500,000 felt too low and risked putting additional burden on smaller charities.
“We’d encourage the charity regulatory bodies to consider lifting this to at least £1m, in line with the existing audit threshold, or even further to £2m if the threshold is increased following the recent DCMS consultation.
“It’s also essential these thresholds are reviewed regularly to ensure they remain appropriate.”