Guidance for Implications of COVID-19 on Charity Financial Reporting

Guidance for Implications of COVID-19 on Charity Financial Reporting

Tom Connaughton Group Internal Auditor, Rehab Group
Charities Institute Ireland’s Representative on the SORP Committee

On 23rd March, the SORP-making body for the Charities SORP issued a timely and useful advisory document to assist preparers and auditors of charity accounts with the implications of COVID-19. Given the extraordinary circumstances we find ourselves in, this guidance document was expedited and approved to support charities during the crisis.

While this guidance is not obligatory, I would expect that many auditors will ask management and directors/trustees of charities about details outlined in the guidance. The majority of Irish charities prepare their accounts as at the end of the calendar year and if they have not already approved their financial statements they should review the guidance document carefully and consider what effect, if any, COVID-19 and the impact of Government virus control measures may have on their organisation.

The guidance document contains sensible and clear advice concerning issues to consider for the Directors’ Report or Trustees’ Annual Report, especially risk reporting. At the moment the focus of all charitable organisations will understandably be on survival and keeping their respective missions achievable and operational. In these unprecedented circumstances, and with limited resources even more stretched than usual, it is easy to understand how the impact of COVID-19 on financial statements could be overlooked, particularly if that impact is post year-end.

The SORP guidance on page 2 lists the following four points as the key messages:

• The measures being taken to contain COVID 19 will impact on charities in many different ways and it is important for charity trustees to understand the impact on the delivery of their activity and their governance including their finances;
• Where a charity is preparing a set of accounts and these have not yet been approved, trustees should consider whether information needs to be included to explain the impact of the COVID 19 situation on their charity;
• There could be changes to the financial statements needed as a result of the COVID 19 situation and it is important that trustees understand and consider these;
• Charities should keep up to date with developing guidance from the relevant charity regulator in their jurisdiction.

The guidance expands on these themes on page 3 and also helpfully references the relevant paragraphs from the Charities SORP for each of the points it raises for charities to consider.

My own view is that the assessment by each charity of its financial sustainability and consideration of going concern are key issues that many organisations should be revisiting in light of the impact of COVID-19 and all the uncertainties it has brought with it.

Even for those charities that conclude they are coping relatively well, their Directors’ Report or Trustees’ Annual Report is likely to need to be reviewed if the objective is to prepare financial statements that fully embrace Charities SORP and provide users of their accounts with insights about the material decisions they have made in relation to COVID-19 uncertainties and risks.

If after reading the SORP guidance, any charity’s management or directors/trustees remain in doubt about their assessment of their charity as a going concern, they can find more detailed advice from the FRC here.

For any organisation that finds itself in rapidly changing operational and/or financial circumstances and has doubts or concerns about its assessment of going concern, I would advise speaking to your auditors.

While SORP guidance for the implications of COVID-19 have an immediate reporting relevance for those charities that have not yet approved their 2019 accounts, I believe there are also matters to consider for those charities who have already approved their accounts.

For these charities the guidance document will not impact their reporting until the end of this year. Despite this appearing to be less urgent for such charities, I would urge those organisations to review the bullet points on page 3 of the SORP guidance, as they outline several areas of risk that should be under consideration by proactive management teams and directors/trustees as part of their ongoing risk management, business continuity and emergency plans.