A guide to the trustees annual report

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Aidrienne Airlie explains why charities need to be clearer about their reserves policy in their trustees annual report

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12th May 2015 by TFN Guest 0 Comments

Following on from a session I hosted in February at the Gathering 2015 on the new charity sector accountancy Statements of Recommended Practice (SORPs) and the differences it means for charity finance directors and managers, this is a brief update on the changes that have also been brought in for all charities regarding the Trustees Annual Report (TAR).

The new SORPs state that the TAR must provide a fair, balanced and understandable review of the charity’s structure, legal purposes, objectives, activities, financial performance and position.

The seven main headings that existed in the previous SORP have been retained. However, to improve the quality of the TAR specific changes have been brought in for all charities – regardless of size.

Adrienne Airlie

Adrienne Airlie

A charity’s reserves policy now needs to be explained and linked to the value of the reserves. Furthermore an explanation as to why reserves are held has now to be given. If the trustees decide that holding reserves is in fact unnecessary the TAR needs to disclose the fact and provide their reasons.

If trustees’ number are greater than 50, then the old exemption which limited disclosure to a maximum of 50 has now been removed.

In addition, for those charities with income in excess of £500,000 the following are some of the changes that will need to be reflected in the TAR for accounting periods that begin on or after 1 January 2015.

  • Additional risk disclosure: trustees must identify the principal risks and uncertainties impacting on the charity and their plans and strategies to mitigate those risks.
  • Trustees need to disclose the charity’s social investment policy which will involve identifying how its programme related investments contribute to the achievement of its charitable aims and objectives.
  • A charity must also detail the financial impact of significant events and significant charitable activities throughout the year.
  • In the Structure, Governance & Management section of the TAR, trustees need to provide the arrangements for setting pay and remuneration of the charities key management personnel and any benchmarks or criteria that are used in this exercise.

Some of the disclosure changes such as the remuneration basis are going to cause concern amongst trustees, serving to further fuel some of the negative commentary in the press regarding chief executive pay.

However, charities must embrace the increased transparency that the new SORPs will provide. Not only will they provide enhanced disclosures and enhanced reporting, they will provide trustees, charity managers, all stakeholders, funders, and the wider public with increased transparency and the increased confidence that follows on from this. This will be especially true in terms of how the charity uses and appropriates its funds and how these funds are being used to deliver its charitable objectives - much less room for doubt can only be a good thing for the third sector.

Adrienne Airlie is chief executive of Martin Aitken &Co Ltd one of Scotland’s leading accountants and business advisers to the charity sector. If you missed the session on the new SORPs at the Gathering 2015 and would like a copy of the slide pack, you can email Adrienne for a copy.