Accounting practices for any large business are complex and full of potentially thorny issues, but charities often encounter various pitfalls that can cause serious problems. With the newly released Statements of Recommended Practice (SORPS) from the Charity Commission it's important to consider these potential trouble areas. Not being aware of them can lead to problems further down the line, and as always unpicking a problem after the fact can be extremely difficult and time consuming.
Chartered accountants in London deal with a wide range of charities and have identified the following pitfalls which all charities need to keep in mind.
• Lack of Clarity On Accounting Practices. One of the major problems, according to experienced chartered accountants in London, is a lack of clarity on what practices have been used when compiling items such as creditors and debtors. By keeping an explanation of how figures have been calculated it is possible to gain an accurate view of the charity's performance.
• Unclear Trustee Reports. In the new Charities SORP there is clear guidance on what needs to be included in Trustee Reports. Chartered accountants in London agree that charities need to keep their reports concise, using clear and direct language that conveys all the necessary information without the need for further clarification.
• Confusion Over Permanent Endowments. According to chartered accountants in London there is often a lot of confusion around permanent endowments. The reason for the problems is that only the investment income derived from the endowment can be spent, not the capital itself. Therefore the top chartered accountants in London always insist that in reporting the capital value of permanent endowments be separate from the income generated and also from other unrestricted assets.
• Issues Surrounding Related Party Transactions. This can be a real problem. The issue surrounds confusion about what defines an unrelated party and that what counts as a related party is regularly underestimated. In the first instance refer to the Charities SORP, and if in doubt contact a reputable chartered accountants in London for clarification.
There's no doubt that, at first glance, the preparation of financial statements for charities can be a complex business. Although there is a lot of guidance in the Charities SORP and on the Charities Commission's website it may help to seek advice from experienced chartered accountants in London who deal with the nation's biggest charities on a regular basis.
HW Fisher's team of chartered accountants in London have extensive experience working in the charity sector and would be happy to speak to you regarding your requirements.