The new Sorp misses a trick

It feels a long time ago now that the Charity Commission launched a consultation, in summer 2013, on a new draft of the Statements of Recommended Practice for charities’ accounts.

The not-for-profit sector has undergone some difficult times in recent years, and has changed a great deal in the 18 or so months since the consultation launched. So there’s certainly a debate to be had about whether the new Sorp is fit for purpose and whether it addresses the developments of the last two years, such as increased demands on public trust in the sector. Two of the biggest issues the public have in regards to the charitable sector – whether donations are reaching the end user, and whether donations are being used to fund large salaries at the top of the organisation – are firmly finance issues. With the forthcoming abolition of the Financial Reporting Standard for Smaller Entities and the final contents of the Sorp still not settled in a number of key matters, there is still some uncertainty over the accounting treatment of some important areas. This is something that the recently-convened new Sorp committee will have to consider. Indeed, the smaller charities may well have to comply with a burdensome reporting regime that was meant for larger charities, which will be costly for them.

On the whole, there’s a view that the new Sorp set the bar relatively low for the minimum requirements charities are expected to adhere to in their reporting framework, especially in the trustee annual report. But the guidelines are still very tight, and arguably do not encourage charities to show innovation in their reports.

Personally, I believe both the incoming and the outgoing Sorps miss a trick. The annual report should be a charity’s shop window to promote itself to funders and potential funders, in a transparent and innovative way which grabs their attention. The current model is quite rigid and does not really give charities the freedom and flexibility to tell their story or to address the key issues and concerns of the general public. There can often be too much jargon flying around within reports, and numbers are presented in a way which is difficult for the average man or woman on the street to understand or interpret.

The problem with reporting in this way is that it can be seen as being very inward-facing: charities are, in effect, talking to themselves, instead of the outside world. Giving organisations the ability to make further changes to the way they present their annual report would help to address uncertainty over the role they play and to attract funders.

When any new guidelines are implemented, they can be quite tricky to navigate – but not nearly as tricky for someone with little or no knowledge of the sector picking up a report for the first time.

Nick Simkins is head of charities and education at accountancy firm Chantrey Vellacott