Charity accounts review examines net current liabilities
Charity Commission accounts monitoring review finds that some charities do not explain adequately how they are dealing with financial risks.
The Charity Commission is reminding charities with net current liabilities to explain how they are addressing the associated risks in their Trustees’ Annual Reports (TAR).
In a report published today, the regulator reveals the results of a probe of charities whose accounts recorded net current liabilities. In other words, current debts are more than the funds available to cover them.
The report found that, of the 98 accounts reviewed, nearly half (42) failed to discuss the issue in their reports, meaning that they missed the opportunity to explain to funders and stakeholders how they were managing the risk. Another accounts monitoring review, of charities with pension scheme deficits, produced a similar finding.
The report found that most of the charities reviewed were funding their liabilities either through deferred income - payments received ahead of the service being provided - or through bank loans and overdrafts. These funding models were each adopted by 28 charities.
Whilst many of the charities reviewed have found operating with net current liabilities to be sustainable, others are in financial difficulty. In particular, the report finds that, of the accounts reviewed, 10 included a qualification or an emphasis of matter (see endnote 1) by the charity’s auditors relating to the charities’ ability to continue as going concerns. 5 of these charities are now in liquidation or no longer operating. The Commission says it is assessing concerns about 2 of the remaining 5 charities that do not appear to be dealing adequately with the risks associated with their liabilities.
Nick Allaway, Head of Business Services at the Commission and whose team carried out the review said:
A net current liability doesn’t necessarily mean that a charity is facing financial difficulties, but if this situation continues for a sustained period then the charity’s long term survival must be questionable. Trustees should use their Trustees’ Annual Report and accounts as an opportunity to reassure their funders, supporters and beneficiaries that they are actively managing the situation.
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Notes to Editors
- The Charity Commission is the independent regulator of charities in England and Wales.
- Our mission is to be the independent registrar and regulator of charities in England and Wales, acting in the public’s interest, to ensure that:
- Charities know what they have to do
- The public know what charities do
- Charities are held to account
- An emphasis of matter is used by auditors to draw users’ attention to matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements.
Published: 6 August 2014
From: The Charity Commission