Charities - Calls for new guidelines

Accountants are calling for a radical reform of the Charity Commission’s accounting guidelines, claiming they are unfair and often conflict with the Companies Act and European law.

The statement of recommended practice (SORP) for charities is currently under review, and charities and their auditors this week called for the system to be more flexible.

Barrie Abrahams, head of the charity group at Levy Gee, said: ‘The SORP is not always appropriate given the nature of the charity. Charities are all governed by standard accounting practice, and incorporated charities are also governed by the companies act. This isn’t always taken into account by SORP.

‘If a charity is funded by recurring grants, there is a clear divergence between the way the companies act asks for this to be represented and the standard required by SORP.’

One example of the divergence of the two systems is the Royal Opera House. Conventional accounting standards showed liabilities of #4.6m, but under SORP this liability was transformed into assets of #24.9m.

John Francis, partner at Lindeyer Francis Ferguson, said: ‘SORP is just a guideline, but it is beginning to be seen as an essential standard and charities are having trouble complying with both. The companies act takes precedence over SORP, so this review should take the opportunity to bring SORP in line with company law.’