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SORP 2005

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SORP 2005

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    1. Watts Gregory LLP in association with WCVA SORP 2005 TWO YEARS ON

    2. Watts Gregory LLP in association with WCVA Watts Gregory LLP Charities Unit

    3. Watts Gregory LLP in association with WCVA PRELIMINARIES Notes not comprehensive SORP is big Must read it for yourself together with other material Ask questions Dont sue me see disclaimer

    4. Watts Gregory LLP in association with WCVA INTRODUCTION New rules in for 31/3/06 year ends so now may have done 2 years! Numbers not enough Users want explanations on activities and achievements Charities are publicly accountable must be open and transparent

    5. Watts Gregory LLP in association with WCVA WHAT WERE MAIN CHANGES? Bigger and better Trustees Report More focused Trustees Report activities, achievements, objectives Activity based SOFA and related notes that link to Trustees Report Clarification of certain issues of accounting practice Update for new accounting standards

    6. Watts Gregory LLP in association with WCVA TRUSTEES REPORT

    7. Watts Gregory LLP in association with WCVA TR REFERENCE AND ADMIN New requirement to state the name of the Chief Executive Officer or other senior staff members to whom the day to day management of the charity is delegated

    8. Watts Gregory LLP in association with WCVA TR - STRUCTURE, GOVERNANCE AND MANAGEMENT New requirement to state the policies and procedures adopted for the induction and training of new trustees This seems to have had a positive impact! Risk management statement

    9. Watts Gregory LLP in association with WCVA TR OBJECTIVES AND ACTIVITIES Statement of the charitys aims and objectives and also the strategies and activities undertaken to achieve them. Grant making policies Programme related investment policy Volunteer details. This information is NOT included in the SOFA but some measurement is helpful. This can be by means of an estimate of man/hours and an indicative value of the contribution.

    10. Watts Gregory LLP in association with WCVA TR ACHIEVEMENTS AND PERFORMANCE A review of performance against objectives To contain both qualitative and quantitative information. It may be helpful to identify any indicators, milestones and benchmarks against which the achievement of objectives is assessed by the charity.

    11. Watts Gregory LLP in association with WCVA TR FINANCIAL REVIEW Statement of the reserves policy Explanation of designated funds Explanation of funds in deficit and proposed action Principal funding sources If material state investment policy with reference to ethical, social and environmental considerations

    12. Watts Gregory LLP in association with WCVA TR PLANS FOR FUTURE PERIODS Explain the plans for the future State aims and key objectives set for future periods together with details of any activities planned to achieve them

    13. Watts Gregory LLP in association with WCVA SOFA The main change is to reinforce the principle that the SOFA should report incoming resources and expended resources by activity

    14. Watts Gregory LLP in association with WCVA SOFA - INCOME Incoming resources Incoming resources from generated funds (enabling activities) Voluntary income Activities for generating funds Investment income Incoming resources from charitable activities (actual charitable activities) Activity 1 Activity 2 Activity 3 Other incoming resources e.g. profit on sale of investments Total incoming resources

    15. Watts Gregory LLP in association with WCVA SOFA - EXPENSES Resources expended Costs of generating funds Costs of generating voluntary income Fundraising trading: cost of goods sold and other costs Investment Management costs Charitable activities Activity 1 Activity 2 Activity 3 Governance costs Total resources expended

    16. Watts Gregory LLP in association with WCVA SOFA INCOME ANALYSIS Note the distinction between income from activities to generate funds to enable charitable activities and those receivable from charitable activities Also note split of voluntary and trading income in the heading Incoming resources from generated funds

    17. Watts Gregory LLP in association with WCVA SOFA - GRANTS Grants for core funding or those in response to an appeal are voluntary income. Grants for services rendered are incoming resources from charitable activities. E.g. project grants / SLAs

    18. Watts Gregory LLP in association with WCVA SOFA - EXPENSES Costs are now linked to activities Support costs are no longer to be shown separately but allocated to the relevant activity. They should be disclosed in the notes to the accounts together with an explanation of the basis of allocation Management and administration costs are gone and replaced by Governance costs

    19. Watts Gregory LLP in association with WCVA SOFA SUPPORT COSTS

    20. Watts Gregory LLP in association with WCVA SOFA - COSTS Support costs can be allocated by staff time, staff numbers, office space or any other reasonable method. BE CONSISTENT Governance costs are much narrower than Management and administration and comprise internal and external audit, legal fees for trustee advice, costs of trustee meetings and preparing statutory accounts

    21. Watts Gregory LLP in association with WCVA SOFA ACTIVITY REPORTING Activities to be highlighted in Trustees report Income by activity to be analysed Expenses by activity to be analysed

    22. Watts Gregory LLP in association with WCVA EXAMPLE EXPENSES ANALYSIS

    23. Watts Gregory LLP in association with WCVA EXAMPLE EXPENSES ANALYSIS

    24. Watts Gregory LLP in association with WCVA BALANCE SHEET No major changes Columnar format

    25. Watts Gregory LLP in association with WCVA INCOME RECOGNITION NB these rules are as before Entitlement normally arises when receivable or when the charitys right becomes enforceable Certainty reasonable certainty of receipt Measurement monetary value can be easily measured

    26. Watts Gregory LLP in association with WCVA GRANT INCOME Donation type grants immediate recognition Performance related grants recognise as services delivered Performance related grants probably unrestricted if surplus can be kept.

    27. Watts Gregory LLP in association with WCVA SMALL CHARITY EXEMPTIONS < 250k income Less detailed Trustees Report table 11 Natural not activity based expense analysis

    28. Watts Gregory LLP in association with WCVA NOT COVERED Heritage assets omission from balance sheet Programme related investments non commercial, charitable investments must be shown separately in the accounts. FRS17 Retirement benefits

    29. Watts Gregory LLP in association with WCVA ACTION FOR TRUSTEES Start to plan for the TR Be clear on aims and objectives Be clear on key activities Trustee induction? Risk management? Reserves policy? Volunteers?

    30. Watts Gregory LLP in association with WCVA ACTION FOR FINANCE STAFF Clarity on activities and how to get at the information Define and allocate support costs PY figures Sort income recognition issues Review nature of grant income

    31. Watts Gregory LLP in association with WCVA PRACTICAL PROBLEMS IN APPLYING THE SORP Reserves policies Activity based reporting Cost allocations

    32. Watts Gregory LLP in association with WCVA RESERVES POLICIES The basic definition of what is commonly known as free reserves is that part of the charitys income funds that is freely available. This definition used to exclude : Permanent endowment funds Expendable endowment funds Restricted funds Designated funds Income funds that could only be realised by disposing of fixed assets held for charity

    33. Watts Gregory LLP in association with WCVA FREE RESERVES SORP 2005 changes the above in that designated funds can (not must) be regarded as part of free reserves and charities may (not must) be able to view expendable endowment funds as part of reserves. The emphasis now is on flexibility and a consideration of the charitys circumstances

    34. Watts Gregory LLP in association with WCVA WHY HAVE RESERVES? To fund working capital To fund unexpected expenditure arising out of e.g. project deficits, unplanned events, emergencies To fund income shortfalls To develop new functions / projects To underpin long term commitments

    35. Watts Gregory LLP in association with WCVA THINK WHAT IF!! My grant is 3 months late in arriving The roof needs replacing I want to embark on a new project Project 1 has cost overruns Etc etc

    36. Watts Gregory LLP in association with WCVA 2 APPROACHES The Status Quo approach The Armageddon approach

    37. Watts Gregory LLP in association with WCVA A BETTER WAY Consider risks Analyse current position Look ahead at income streams Look ahead at expenditure expectations Consider future projects

    38. Watts Gregory LLP in association with WCVA DRAFTING THE POLICY WHY THE NEED HOW MUCH HOW TO GET THERE REVIEW & MONITOR

    39. Watts Gregory LLP in association with WCVA ACTIVITY BASED REPORTING The Trustees report should clearly state the main activities of the charity within the section objectives and activities The SOFA or the related SOFA notes should analyse income and expenditure by activity

    40. Watts Gregory LLP in association with WCVA PROBLEMS ENCOUNTERED No clear link between TR and accounts Analysis by natural classification NOT by activity

    41. Watts Gregory LLP in association with WCVA CORRECT

    42. Watts Gregory LLP in association with WCVA INCORRECT

    43. Watts Gregory LLP in association with WCVA CORRECT

    44. Watts Gregory LLP in association with WCVA INCORRECT

    45. Watts Gregory LLP in association with WCVA OTHER SIMILAR ISSUES Confusing funds with activities Confusing projects with activities

    46. Watts Gregory LLP in association with WCVA COST ALLOCATION Costs are to be allocated as follows : Direct charitable activities Fund raising Support and then allocated back to activities, fund raising or governance Governance

    47. Watts Gregory LLP in association with WCVA QUESTIONS??

    48. Watts Gregory LLP in association with WCVA FINISH Hope you enjoyed the session Please stay for something to eat

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