Charities need to keep accurate accounting records - for registered charities this is a strict legal requirement and the accounts need to be filed with the Guernsey Registry. From 2024, charity financial statements are likely to have to be made available to the public on request.
There is no formal Guidance from the Registry on what is required, but the AGC has discussed this subject in detail with the Registry. We both believe charities should follow a common standard, and what follows below is both straightforward and should be the least onerous option for most charities.
The authority for Charity Financial Statements is Financial Reporting Standard (FRS) 102 and the related Charities SORP (Statement of Recommended Practice), the latest version updated in October 2019 (adopted by all the UK Charity Commissions). The SORP can be found HERE. It's is a very long, complex document, but most of is inapplicable to almost all Bailiwick charities, as explained below.
LBG charities should note that The Companies (Guernsey) Law 2008 (in particular Section 243) specifies the form and some of the content of their financial statements, but provided the principles of FRS102, as set out below, are followed the financial statements will be compliant with company law.
The SORP provides for smaller charities, that is charities with Gross Income of less than £250,000, to produce accounts on a receipts and payments basis. This is optional but must be stated in the Financial Statements if this approach is taken.
We think that this probably applies to almost 95% of charities in the Bailiwick by number. All these charities need to do is to analyse the bank statements or cash book and summarise the income and expenditure, and assets and liabilities into the categories set out in the Pro-Forma accounts (see below).
Charities above this threshold must prepare accounts on a full accruals basis following all the policies set out in the SORP.
The SORP also provides for charities with Gross Income below £500,000 to provide less information in their financial statements.
Format of Charity Financial Statements
We have put together a compliant Pro-Forma set of financial statements for charities to follow. A PDF version can be found HERE and a Microsoft Word version can be downloaded HERE
We encourage charities to use this pro-forma so that there is consistency between their financial statements when the requirement to make them available to the public comes in.
The Pro-Forma comprises Appendix 1 (Trustees Report), Appendix 2 (Income and Expenditure account), Appendix 3 (Balance Sheet).
The Appendix includes notes (italicised) taken from the SORP that are likely to be relevant for all charities, but larger charities (with Gross Income above £500,000) should refer directly to the SORP.
All charities should report, in the Notes to the Accounts any material event occurring after the end of the accounting period, that the reader should be aware of. More detail is given in Section 13 of the SORP, including guidance as to whether an event should be adjusted for in the financial statements, or simply noted.
Larger charities should provide a Statement of Cash Flows as set out in Section 14 of the SORP. They may also need to have details in the Notes to the Accounts to explain movements in figures on the Balance Sheet or the Income and Expenditure Statement.
This note caters for disclosure matters that are likely to affect most charities in Guernsey, but does not contain the requirements for some of the more unusual aspects of income and expenditure and related disclosure requirements explained in the SORP, such as
Appropriate accounting policies
Smaller charities may recognise income and expenditure on a receipts and payments basis, as described above. The rest of what follows in the section does not apply to them.
For larger charities, those with income exceeding £250,000, specimen accrual accounting policies fare set out in Appendix 4 (Notes to the Accounts – Accounting Policies) and can be summarised as follows:
1 Income should be recognised on entitlement, when it is probable, and it can be measured reliably. If a donation or grant is conditional, the condition must have been met. Performance related grants should be reported only to the extent that the performance conditions have been met. It must be recorded gross, with and third-party fees treated as a fundraising expense.
2 Donated goods and services should be recognised as income at fair value. There is a module within the SORP which sets out the requirements for recognition, measurement and disclosures from this income source.
- The value of services of volunteers cannot be measured reliably so should be excluded from the accounts.
- The value of donated goods is often impractical because of the sheer volume of low-value items and the absence of stock control system, so the value to the charity should be recognised as income only when sold
3 Where Government grants are received, the charity should disclose the nature and amounts, and any unfulfilled conditions and contingencies attached to them.
4 Where income is deferred because of unmet conditions etc the Notes to the Accounts should explain the reasons for the deferral.
1 A liability to expenditure should be recognised when there is an obligation, the liability is probable (rather than possible), and it can be measured reliably (normally using historic cost).
2 Grants payable should only be recognised if the obligation is unavoidable (i.e. the beneficiary has been notified, or is established by charity policy). Where a grant is payable over more than one year, the full liability should be recognised unless there is a performance obligation required of the beneficiary that enables the grant to be withdrawn, or there is a discretion to avoid the future expenditure.
3 Costs should be allocated to activities reasonable and consistently. Direct costs should be allocated directly, shared costs and support costs should be apportioned on a reasonable basis.
1 Related party transactions should have the disclosures set out in para 9.20 of the SORP.