1. Catherine Livingstone, Senior Manager
Accounting: Trustee Responsibilities Inspiring Scotland – Pro bono awareness event
Lorna Wyllie, Partner
Catherine Livingstone, Senior Manager
25th October 2017

2. Accounting: Trustee Responsibilities
Financial Governance
Statutory Reporting
The rules governing how a charity must prepare its accounts and what it must show in those accounts derive from 2 sources; The Charity & Trustee Investment (Scotland) Act 2005 made provision for accounting regulations in Scotland and these were published in 2006 and are known as the Charity Accounts (Scotland) Regulations The regulations cover all sorts of accounting matters including what accounting records charities must keep and the timescales under which charities must submit their accounts to the charity regulator OSCR (the office of the Scottish Charity Regulator). The regulations also detail which charities can prepare simplified, receipts and payments accounts and which must prepare more detailed ‘fully accrued’ accounts – and we’ll have a look at these thresholds in a moment.
The regulations go on to say that those charities preparing fully accrued accounts must do so in accordance with the Statement of Recommended Practice – Accounting & Reporting by Charities which we call the SORP for short! The SORP is an interpretation of UK Generally Accepted Accounting Practice as applicable to charities. The SORP gives us the detail of the general layout of the financial statements as well as the more detailed disclosures that must be included. Before we have a look at the more tricky parts of the SORP we’ll have a look at the various thresholds set out in the Regulations;
Charity Services

3. Financial Governance Management Information Management accounts;
Cash flow forecasts;
Budgetary processes;
Financial Processes, procedures and internal controls

4. Management Information
Income & Expenditure, plus balance sheet and cashflow;
Timely and regular;
Departmental;
Monitoring of restricted funds

5. Cashflow forecasts
Future projections based on timing of income and expenditure received;
Important for large projects e.g. new builds or projects where grants are received after expenditure incurred

6. Budgetary processes
A budget is a list of planned income and expenditure.
This is often based on historical date with assumptions made for expected changes.
Organisations should have detailed short term budgets (one year) and higher level longer term budgets (say 5 years).
Ideally departmental budgets should be prepared.
Board approval;
Budget vs actual monitoring;
Reforecasting
A budget is the planned income or expenditure for an organisation and tends to be set before the year starts. Budgets are normally based on historical data with known or expected changes incorporated. Organisations should have detailed short term budgets and longer term budgets. Once the year starts it is useful to compare the actual results to the original budget and identify the reasons for fluctuations. If these fluctuations are likely to continue for the remainder of the year then the budgeted figures should be updated to give a forecast outturn for the year. The forecast outturn represents the actual figures to date and the expected figures for the remainder of the year. If project or departmental accounting is being used then it is useful to prepare budgets on that basis also. A lot of organisations do this for specific projects as it is required by funders but that is often separate from the accounting function so where possible the same information should be used to allow more benefit to be gained for the accounting function.

7. Financial processes, procedures and internal controls
Documented procedures;
Tested internal controls and segregation of duties;
Board involvement

8. Statutory Accounts: The Accounting Rules
Company
SCIO / Trust
All accounts must give a true and fair view i.e. prepared on the accruals basis
Gross receipts <£250,000
Receipts and payments accounts and statement of balances
Gross receipts >£250,000
True and fair view accounts
Any charity which is also a company or a SCIO (Scottish Charitable Incorporated Organisation) or any charity with incoming resources more that £100,000, must prepare accounts that show a true and fair view, that is on the accruals basis. This means that the accounts include adjustments for non-cash items such as debtors and prepayments, creditors and accruals. The type of things we’ve already been speaking about this morning.
If a non-company charity has income of less than £100,000 then it can prepare simplified receipts and payments accounts which just summarise the cash in and cash out during the year but give a note of any assets and liabilities at the year end. For the rest of this session we’ll be ignoring the requirements for receipts and payments accounts and concentrating on accruals accounts.

9. Statutory Accounts: The Scrutiny Rules
Company
SCIO
/Trust
<£500,000
Independent examination*
>£500,000
Audit
* must be qualified if accruals accounts
The Regulations also cover the requirements for the external scrutiny of charity’s accounts. There are two options here; charities with incoming resources of less than £500,000 can have an independent examination of their accounts but if the income exceeds £500,000 the accounts must be subject to a full audit. The Independent Examination is a lesser form of scrutiny and the report provides less assurance about the accuracy of the accounts – but this is appropriate for smaller charities. The Independent examination basically involves checking that the accounts have been properly prepared from the underlying accounting records; but there is less requirement to check the underling records than there is in a full audit.
I should also point out here that there is also an assets threshold; regardless of the charity’s income level if it’s gross assets exceed £2.8 Million then it must have an audit. Finally, charity’s should check that there is no requirement in their constitution or by funders to have the accounts audited.

10. Statutory Accounts: Independent Examiners
Income between £250,000 and £499,999 or fully accrued accounts
Income < £250,000 and Receipts & Payments Accounts
A member of a professional body (ICAS, ICAEW, ICAI, ACCA, CIMA, CIPFA etc
A member of ACIE
The Auditor General for Scotland
‘Someone the charity Trustees believe to have the requisite skills and experience to carry out a competent examination of the accounts’
There is one further complication in respect of external scrutiny which dictates who can perform an independent examination for a charity. If the charity is preparing fully accrued accounts then the examiner needs to be professionally qualified – otherwise someone with the ‘requisite skills’ can perform the examination.

11. Statutory Accounts: The Charities Accounts (Scotland) Regulations 2006
Thresholds apply to each year on its own
9 month filing deadline (OSCR)
Accrued accounts to be prepared in accordance with the charity SORP (unless an alternative SORP applies);
Larger charities have additional disclosure requirements
A few final points on the accounting regulations;
The regulations apply to individual years – so if you breach the audit threshold for just one year you have to have an audit for one year. Prior to the 2006 regulations you were forced to have an audit for two years regardless of how low your income was in year 2. This change is really helpful to charities who get a one-off large receipt such as a legacy.
The regulations require you to file your accounts with OSCR within 9 months of your year end. Although OSCR have no powers to fine you if the accounts are late, if they are seriously late then OSCR can appoint an accountant to prepare the accounts at the Trustee’s personal expense!
And finally, the regulations require charities to follow the charity SORP – unless a more specialist one applies – and we’ll look at those briefly now;

12. Statutory Accounts: What can you do?
Reviewing charity accounts;
Compliance with SORP
Quality of Trustees Report
Balance? SOFA = Balance Sheet
Solvency
Funders and your accounts
Leave plenty of time for drafting the Trustees Report
Leave time for critical appraisal of accounts
Consider additional disclosures
Charity Services

13. Thank you for listening
Any questions?