Revised guidance for ICAS members acting for Scottish charities
The ICAS Charities Panel has published a revised edition of its guidance for members acting for Scottish charities.
The guide has been designed to remove some of the heavy lifting needed to understand the requirements placed on accounts preparers, auditors, and charity independent examiners. It also provides information on Scottish charity law and the regulatory approach of the Office of the Scottish Charity Regulator (OSCR), with a focus on aspects of law and regulation relevant to the preparation and scrutiny of charity accounts.
While it is not practical to cover all the requirements that have a bearing on the preparation and scrutiny of charity accounts, the guide covers the key requirements placed on both company and non-company charities, including Scottish charitable incorporated organisations (SCIOs).
This edition of the guide has been updated to reflect the legal and regulatory environment, and standards and guidance in issue on 1 December 2023. It also highlights related developments expected to impact the sector in the near future, when commencement dates are unknown or uncertain.
With significant changes to FRS 102, and the Charities SORP (FRS 102) not expected until periods beginning on or after 1 January 2026, this edition of the Guide is relevant with immediate effect.
The Charities (Regulation and Administration) (Scotland) Act 2023
This Act received Royal Assent in August this year and makes changes to the Charities and Trustee Investment (Scotland) Act 2005. The changes are intended to:
- Make charities more accountable and transparent.
- Strengthen OSCR’s powers.
- Bring Scottish charity law up to date with certain aspects of the law in England and Wales, and in Northern Ireland.
The provisions of the 2023 Act will be brought into effect in three tranches. Key provisions being brought in, in each tranche are set out below.
From the 1 April 2024, OSCR acquires stronger regulatory powers as follows:
- Increased powers of inquiry, including the power to direct charities to take particular actions.
- The power to remove charities for the Scottish Charity Register that fail to submit accounts and to respond to OSCR’s inquiries about their late accounts.
- An obligation to refuse an application to be registered as charities from organisations that, in OSCR’s judgement, have no or a negligible connection with Scotland.
Further measures are expected to commence on 1 October 2024, including the creation of a publicly searchable record of individuals who have been permanently disqualified by the courts from being a charity trustee so that charities can carry out due diligence on prospective new trustees.
The remaining parts of the 2023 Act are planned to come into force in summer 2025. This should give charities and OSCR the time needed to prepare for these changes, which include:
- The establishment of schedule of charity trustees containing information which will not be made public, such as home addresses.
- The publication of trustee names on the Scottish Charity Register.
- A record of charity mergers.
- Updates to the disqualification criteria for charity trustees.
Under measures to make charities more accountable and transparent, OSCR intends to publish the trustees’ annual reports and accounts of all Scottish charities. It will no longer be necessary for OSCR to redact names from reports and accounts, as in publishing these, OSCR will meet its new legal obligation to make ‘statements of account’ available to the public. This change is likely to take place from summer 2025 but there has been no official confirmation of this to date.
Under the 2023 Act, charities have an option to apply to OSCR for dispensation from certain information being included publicly on the Scottish Charity Register, for example the names of trustees, where the publication of that information is likely to jeopardise the safety or security of a person or property. This dispensation will also apply to the trustees’ annual report and accounts of non-company charities. The trustees of charitable companies, who its company directors, must continue to meet the transparency requirements of the Register of Companies and the reports and accounts disclosure requirements under the Companies Act 2006.
OSCR’s regulatory priorities and annual return changes
OSCR has published updated regulatory priorities for 2024 to 2026. These include a focus on charity trustees’ understanding of core governance matters and activities and the risk that these can be flawed and incomplete in areas such as:
- Trustee disqualification
- Governing documents
- Trustee quorum
- Narrative reporting and accounts
It will support its new priorities through:
- Enhancing the guidance it provides to charity trustees;
- Monitoring trustees’ annual reports and accounts, and analysis of other intelligence and data about charities; and
- Working with sector bodies, professional bodies, and stakeholders to provide training and support to charities, advisers, and trustees.
New annual return questions will be asked of all charities with a financial year ending on or after 30 November 2023. These will include new questions relating to a charity’s accounts.
Companies House reforms
Amendments to Section 444 of the Companies Act 2006 under the Economic Crime and Corporate Transparency Act 2023, remove the option for small non-charitable companies, including trading subsidiaries, to prepare abridged accounts. Small companies will also no longer be permitted to file filleted accounts which removes any dubiety around the ability of charitable companies to file filleted accounts with Companies House.
The effective date of amendments to Section 444 has not been made public.
The periodic review of FRS 102 and the next edition of the Charities SORP (FRS 102)
The FRC is finalising amendments to FRS 102, following its periodic review of UK GAAP and public consultation on its proposed changes.
The next edition of FRS 102 is due to be published in the first six months of 2024 and is not expected to be effective before periods commencing on or after 1 January 2026. This should mean that there is at least 18months between notice of the amendments and implementation.
The Charities SORP (FRS 102) will be updated, and its effective date will coincide with the effective date of the next edition of FRS 102. A consultation draft of the Charities SORP (FRS 102) will be published after the final amendments to FRS 102 are known.
Supplier finance arrangements
FRS 102 is to be amended to introduce additional disclosure requirements to be made alongside the statement of cash flows in relation to supplier finance arrangements. The amendments are being made to reflect changes to IFRS accounting standards. The new disclosure requirements are not expected to be relevant to many charities, and do not apply if a charity does not prepare a statement of cash flows.
Disclosures about supplier finance arrangements are to include:
- The terms and conditions of supplier finance arrangements; and
- The carrying amounts and associated line items presented in the balance sheet of the financial liabilities that are part of supplier finance arrangements at the beginning and end of the reporting period, including the carrying amounts, and associated line items, for which suppliers have already received payment from the finance providers.
Comparative information does not need to be provided in the first year of making these disclosures.
These amendments are expected to be published alongside the periodic review amendments but with an effective date of periods commencing on or after 1 January 2025. Charities with supplier finance arrangements preparing a statement of cash flows will therefore need to comply with these new disclosure requirements, in advance of the periodic review amendments to FRS 102 and the next edition of the Charities SORP (FRS 102).
Keeping up to date
In addition to checking icas.com on a regular basis for developments, members using the guide should monitor the OSCR website and the Charities SORP website to keep up to date with changes to accounts and scrutiny requirements, as well as any new guidance.
