Tax

Charity accounting in Northern Ireland

Dec 02, 2019
Gareth Morgan appraises the mandatory framework for charity accounting in Northern Ireland, which represents a significant change for charities and practitioners alike.

Charities in Northern Ireland are still getting to grips with a mandatory framework for charity accounting, including a requirement to file accounts in specified formats with the Charity Commission for Northern Ireland (CCNI). Although CCNI has required charity accounts for several years, the statutory accounting framework under the Charities Act (Northern Ireland) 2008 only took effect for financial years starting on 1 January 2016 or later.

Northern Ireland-registered charities have therefore had to file accounts under the new rules since late 2017. A review of some of the documents filed with CCNI shows major variations in terms of compliance, especially among small- to medium-sized charities. Some are excellent, but others seem to show virtually no awareness of the rules despite plenty of guidance from CCNI.

Charity accounting regulations took effect in England and Wales in 1996 (originally under Charities Act 1993, now under Charities Act 2011). English and Welsh charities now have more than 20 years’ experience of preparing accounts under a statutory framework and filing them with the Charity Commission for England & Wales (CCEW). Scotland has had charity accounting regulations since 1992 but, without a charity regulator, compliance in the early years was highly variable. However, following devolution and the establishment of the Office of the Scottish Charity Regulator (OSCR) with statutory powers under the Charities and Trustee Investment (Scotland) Act 2005, new regulations took effect in 2006.

Effective means of reporting

In all UK jurisdictions, including Northern Ireland, smaller charities with income of up to £250,000 (if not constituted as companies) have the option to prepare a receipts and payments (R&P) account together with a statement of assets and liabilities (SOAL). Above this, accruals accounts are required arising from Charities SORP with a statement of financial activities, balance sheet and extensive notes.

In my experience, and from my research findings, the R&P regime – if followed properly – is a very effective means of reporting for funders and others who use charity accounts at this level. But it is not uncommon to find the SOAL missing or to find something labelled as an “income and expenditure account”, which is not appropriate either under the R&P regime or under the SORP. A further complication in Northern Ireland is that, because the new structure of charitable incorporated organisations (CIOs) has not yet been implemented, many smaller charities are still being formed as charitable companies, which rules out the R&P approach. (In England and Wales, most new charities are now formed as CIOs and in Scotland as SCIOs. Many existing charities have converted to the CIO forms.)

From further training to good governance

Separate thresholds apply in each jurisdiction regarding the external review process. In Northern Ireland, registered charities with over £500,000 in income are subject to audit regardless of their legal form. Below this, a charity must have an independent examination (IE) of its accounts, but this is much more than an informal process – even in the case of R&P accounts the examiner must, by law, follow the directions of CCNI and must consider seven separate issues of negative assurance before completing his or her report. Moreover, like Scotland, Northern Ireland has no lower limit for IE so there is a great need for training more people to undertake IEs. In the £250,000 to £500,000 income band, the examiner must be professionally qualified. Fortunately, the Association of Charity Independent Examiners now has a specific committee focused on training and supporting IEs in Northern Ireland with good links to Chartered Accountants Ireland.

Reforming the Charities SORP

However, for charities subject to the SORP regime (which includes all Northern Ireland-registered charities with over £250,000 in income, and charitable companies whatever their income), further changes may be on the horizon. In the last year, I was invited by the four charity regulators of the UK and Ireland (CCEW, OSCR, CCNI and the Charities Regulator of Ireland) to chair a Charities SORP Governance Review. This was concerned not with the detailed content of the SORP, but with how the processes in developing the SORP could be improved. The panel recommended several changes including a reduction in the size of the SORP committee, but with a clear representation of at least two persons from each jurisdiction – one of whom would have specific experience of smaller charities (under £500,000 in income). Hopefully, Northern Ireland will soon have two specific members on the committee, including someone to make the case for smaller charities applying the SORP.

The benefits of more informed trustees

Both the English and Scottish jurisdictions can now be considered as ‘mature’ in the sense that charities have over 10 years’ experience in applying a mandatory accounting regime. It has been exciting to see trustees increasing their understanding of finances, including the appreciation of restricted funds, reserves policies and public benefit reporting, which has in turn led to more effective charities. I am confident that similar benefits will soon become apparent in Northern Ireland, especially as Chartered Accountants and others gain experience as independent examiners.

New accounting regulations are also due to be implemented soon in the Republic of Ireland under Charities Act 2009, which will hopefully bring similar benefits.
 
Gareth Morgan is Emeritus Professor of Charity Studies at Sheffield Hallam University and now works with charity consultants, The Kubernesis Partnership LLP, based in Dunbar, Scotland. Gareth is the author of numerous publications on charity regulation and accounting, including The Charity Treasurer’s Handbook (the fifth edition includes the new requirements for Northern Ireland) and Charitable Incorporated Organisations. In 2018/19, Gareth served as independent chair of the Charities SORP Governance Review.