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Charities: Finance

Question for Department for Digital, Culture, Media and Sport

UIN HL8898, tabled on 25 June 2018

To ask Her Majesty's Government what assessment they have made of the obligations of charities to disclose their financial stability to donors.

Answered on

6 July 2018

The Charity Commission’s guidance on charities in financial difficulty expects trustees to discharge their duties by regularly assessing and monitoring the overall financial position of their charity and by taking steps to ensure that its funds can continue to be used for the purposes for which they were given. Where their charity has to close, the Charity Commission expects trustees to have planned for an orderly shutdown. The directors of charities that are companies also need to take all necessary steps to avoid wrongful trading.

Charities that prepare their accounts on a receipts and payments basis are not required to include a note to their accounts about the charity’s financial circumstances but are encouraged to do so as a matter of good practice. Charities that prepare ‘true and fair’ accounts under the Charities Statement of Recommended Practice (SORP) must confirm that the charity is a going concern or alternatively advise of any uncertainties as to going concern in the notes to the accounts.

The Charity Commission’s Directions to charity independent examiners changed from 1 December 2017 requiring them to review the trustees’ consideration of their charity’s financial circumstances and, where the SORP is followed, the trustees’ assessment of going concern. Auditors of charities already have to report on going concern and the UK charity regulators have required auditors and examiners since 1 May 2017 to advise the regulator directly of any doubts they have as to a charity being a going concern.

This important duty will be a key contribution to the ability of charity regulators to take timely action. UK charity regulators have agreed a common list of matters of material significance to assist auditors in reporting important matters on a timely basis.

The new requirements have strengthened charity regulators’ ability to take action where there are serious concerns about a charity’s financial health or financial management.