Ritson Smith hot topic: new accounting regulations for charities in Scotland

 
The following article has been prepared by Jean Main, partner with Aberdeen-based accountancy practice Ritson Smith.

The Scottish Executive has recently published proposals for new accounting regulations under the Charities and Trustee Investment (Scotland) Bill.  These new rules will affect the reporting requirements for charities in Scotland, and will therefore also have an impact on charities and on the way their accountancy firms work.

The changes will affect the reporting process in different ways.  

The creation of the Office of the Scottish Charity Regulator (OSCR) has been the first step towards developing a regulatory framework for Scottish charities.  OSCR is the equivalent of the Charity Commission for England and Wales and, under the new regulations, all Scottish charities will have to register with OSCR, lodge annual returns and lodge their accounts within seven months of year end (previously they only had to report to the Inland Revenue).

This means that this sector will now be better regulated.  It will now be possible to establish the exact number of charities in Scotland, what they do, what their income is, and other key facts

New set of rules

Another area that has been revised is the Statement of Recommended Practice (SORP).  This is a set of rules with which charities have to comply to prepare their accounts.  The new SORP 2005 will produce changes to disclosures and accounts and  will be effective for accounting periods beginning on or after 1 April 2005.

The consultation paper published by the Scottish Executive proposes to change income limits for using cash or accrual-based accounts.  Charities with up to £25,000 income will be able to use cash basis accounts, but over that limit it will be compulsory to use accrual basis accounts (the limit used to be £100,000).

The same limit has been set for audit.  Charities whose income is lower than £25,000 won’t legally need an audit.  These limits, however, will only affect trusts (uncorporated charities) as corporated charities already have to work to this figure.

Even though the legal threshold for the audit has been lowered, smaller charities considering attempting their own audit should think carefully about the consequences.  An audit is an extremely complicated and difficult process that should be handled by experts, particularly because the new regulatory body will exercise a more thorough form of control.

Specially trained accountants

Not all accountancy firms, however, have a proven track record of dealing with charity accounts, so it’s important to ensure you appoint a practice with  demonstrable expertise in this field, like Ritson Smith.

Accountants planning to deal with charities have to undergo special training.  At Ritson Smith, two partners - Neill Farquharson and Jean Main – already have several years experience working with charities, and members of their audit team are also regularly trained and kept up-to-date with new developments in this area.

It’s important for charities, like for any other company, to have complete confidence in their accountants.  St Margaret’s School for Girls, Albyn School and the Grampian Autistic Society are just some of the local charities that regularly rely on Ritson Smith to ensure they comply with all accounting regulations.

 “Under the new regulations, all Scottish charities will now have to be compliant as in England and Wales”, explains Jean Main.  “This is good news for everybody, including the general public.  Once all charities are registered with OSCR, it will be possible for anybody to ask for information on them, which is a highly important change from a public accountability point of view”.

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