Please contact your SV audit partner/manager in the usual way if you wish to discuss any of these topics in further detail, or for any other questions which have not been covered here.
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- How do I write about the impact of COVID-19 in the trustees’ annual report now when there are constant changes in the external environment that may mean things have changed when it is finally approved?
- Our services are being disrupted as a result of the impact of COVID-19. We are not sure if the disruption is temporary or whether we may encounter longer-term disruption or financial instability. Do we need to file a serious incident report with the Charity Commission now?
- Going concern and the annual report and accounts
- What does “going concern” mean when we are signing our statutory accounts?
- What do we need to prepare for the management and the board to help them assess “going concern” when they are signing the annual report and accounts?
- What different “going concern” situations might we find ourselves in at the point of signing the accounts?
- Can we sign a set of accounts even if there is material uncertainty surrounding “going concern”
- What do we need to say in the annual report and accounts about going concern?
- What are the filing deadlines for the annual report and accounts? Can extensions be sought?
- What were the most recent changes made by the charity regulators to the “Matters of material significance” guidance for auditors and independent examiners?
- Can my audit be done remotely?
- What advice do trustees need before they take out a business loan secures on the charity’s property?
How do I write about the impact of COVID-19 in the trustees’ annual report now when there are constant changes in the external environment that may mean things have changed when it is finally approved?
The SORP committee has prepared guidance on the implications of COVID-19 on charity financial reporting: https://www.charitysorp.org/about-the-sorp/covid-19/
We would expect to see comment in the trustees’ report in relation to:
- How it may have impacted on achievements and performance in the year
- Key risks and uncertainties and how they are managed
- Future plans
For December 2019 year-ends, the impact of COVID-19 is not going to have been significant for you during the financial year. You may have a post balance sheet event to disclosure, such as a decline in the value of an investment portfolio. Furthermore, you will need to consider the bullet points above. If your report is largely already drafted, you could add a ‘Foreword’ to explain what the implications have been since the year end.
For March 2020 year-ends, you will have encountered more disruption towards and since the end of the financial year. As a result, any explanation of the impact is going to be trickier to assess over the coming months until your report and accounts are approved. You may wish to either include a separate section on COVID-19 starting ‘At the time of writing …’ anticipating it may have changed when the accounts are approved. Or leave a blank space within your annual report so that you can provide an update nearer to the date of approval. You will have to give more consideration to the bullet points above, in particular, on how this has impacted on your reserves policy and what reserves you will need to see your organisation through the next 12 to 18 months.
We have considered the impact of going concern in a separate FAQ.
Our services are being disrupted as a result of the impact of COVID-19. We are not sure if the disruption is temporary or whether we may encounter longer-term disruption or financial instability. Do we need to file a serious incident report with the Charity Commission now?
The Charity Commission did issue specific guidance around reporting in respect of the impact of COVID-19, however this was quickly withdrawn and so at the moment, the normal guidance applies along with your own discretion and judgement. The table giving illustrations of when you would and would not report is still a helpful tool to assist you in this decision: Click here to read full guidance
We would suggest that if any disruption is having a significant impact on you providing support to your beneficiaries, or see any trends emerging that may worsen over time, then you might want to report in at this stage and suggest you will do a follow up report as the situation evolves.
Going concern and the annual report and accounts
What does “going concern” mean when we are signing our statutory accounts?
Your year-end annual report and accounts are usually prepared on the basis that the organisation is a going concern. The assumption is that you will continue to operate – so you have the intention to continue and there is no need/requirement to liquidate the organisation.This means that the trustees expect the organisation to continue operating and paying liabilities as they fall due for at least twelve months from when the accounts are signed.The Financial Reporting Council guidance for corporates may be useful to charity boards. This was last updated in 2016 but does remain applicable.
What do we need to prepare for the management and the board to help them assess “going concern” when they are signing the annual report and accounts?
The board needs to review budgets and forecasts for at least the coming 12 months from signing. You will need to pay attention to cashflow forecasts particularly understanding the timing of income in your pipeline. Different future scenarios may also help trustees understand the implications of different risks crystallising. Make sure you keep the forecasts up to date for key changes
An update on your relationship with the bank and/or other lenders will be key. If you have an overdraft facility or borrowing, ensure you are on the front foot and in touch with your bank if you anticipate any problems regarding repayments or breach of associated covenants
You need to provide the board with sufficient information to understand whether there are any uncertainties regarding going concern, what these might be and their relative significance (material or not) to the organisation’s ability to continue. If material, then the uncertainties will require disclosure in the report and accounts.
Whilst the period is typically 12 months from signing, you do also need to consider whether there are any significant events later than this that can be foreseen now that might have an impact.
Board papers typically consist of a summary paper with details supporting cashflow scenarios.
What different “going concern” situations might we find ourselves in at the point of signing the accounts?
One of the following will apply to your organisation:
- Going concern basis is appropriate and there are no material uncertainties
- Going concern basis is appropriate but there are material uncertainties
- Going concern basis is not appropriate as you anticipate you will have to cease operating within twelve months
In 1 above you can proceed and get the accounts signed as usual.In 3 you should be prioritising professional advice which can either help you survive or support with the best route through your insolvency.
Can we sign a set of accounts even if there is material uncertainty surrounding “going concern” – situation 2 above
Yes, you can and the accounts can be prepared on a “going concern” basis; as long as the material uncertainties are sufficiently disclosed in the annual report and accounts.These disclosures always need thoughtful and careful wording, as you want to avoid anything that is a self-fulfilling prophecy. The auditors will be required to reference the position in their audit report.You could also delay signing the accounts until you have more certainty later in the year.
What do we need to say in the annual report and accounts about going concern?
The SORP does require you to explain the nature of any uncertainties surrounding going concern at the time of signing. If these uncertainties are material, then you need to be clear what supports the trustees’ conclusion that you can remain a going concern and what the nature of the uncertainties are. In the section on principal risk and uncertainties, you should consider whether you should comment on your financial sustainability and going concern.Where there are material uncertainties facing the charity, you will need to set out what these are and how you intend to manage/mitigate them
This all needs appropriate discussion with trustees and the auditor, before reaching a conclusion.
The guidance from the SORP-making body references going concern on pages 3,4 and 5.
What are the filing deadlines for the annual report and accounts? Can extensions be sought?
The usual filing deadlines are 9 months for Companies House and 10 months for the Charity Commission.
Year ended Companies House deadline Charity Commission deadline
31 December 2019 30 September 2020 31 October 2020
31 March 2020 31 December 2020 31 January 2021
Both Companies House and the Charity Commission are aware of the potential difficulty that organisations may have in filing the report and accounts on time.So if more time is needed to complete the preparation and audit of accounts, including the assessment of the going concern assumption, you can contact them.Companies House has indicated it will provide three month extensions on request, increasing the deadline from nine months to twelve months. If COVID-19 is the reason for the extension then you will get an automatic extension. Applying can be done on line here – https://beta.companieshouse.gov.uk/extensionsIf you don’t apply for the extension in advance and then file late you will get the automatic filing penalty.The Charity Commission, OSCR and CCNI would like charities to file on time if possible but are also willing to provide extensions to the usual ten month deadline. If this is an issue you should contact CCEW by emailing email@example.comYour email should include both your charity’s name and charity registration number.If you are registered in Northern Ireland, you are asked to email CCNI firstname.lastname@example.orgOSCR are not currently requesting charities contact them and do not have (as at 17 April 2020) an email address to contact them on.
What were the most recent changes made by the charity regulators to the “Matters of material significance” guidance for auditors and independent examiners?
The most recent reissue came out on 15 April 2020. There were three changes relating to COVID-19, timing of reporting and the applicability of the guidance to internal audit.
- COVID-19 (page 23) – confirmation that difficulties in carrying out an audit or independent examination that are solely due to a national emergency need not be reported
- Timing of reporting (page 9) – timely reporting is key but recognition that timing of reporting would reflect the specific circumstances – in summary:
- as soon as possible
- on becoming aware of an immediate risk to charitable funds, a material loss due to fraud, or doubts as to the integrity of trustees or key management personnel
- in instances where the auditor or examiner concludes that the trustees and / or key management personnel are uncooperative, deliberately unresponsive, or unreasonably slow in responding to the auditor or examiner seeking to discuss a reportable matter, in such cases the auditor or examiner should include reference to this behaviour in their report
- for other circumstances not listed, reporting is done as soon as possible following on from any discussion(s) had with trustees
- on signing
- or making a modified audit opinion, an audit opinion with an emphasis of matter or material uncertainty regarding going concern
- or making an independent examination report where the regulator’s guidance identifies there is a duty to report
- for those accounts that must be tabled before a Parliament or a Governmental Assembly, once the tabling process has been completed
- Internal audit (page 24) – clarification that the guidance only applies to internal audit engagements in very limited circumstances
You can read the full guidance here.
Can my audit be done remotely?
Due to current social distancing restrictions, everyone is required to work from home wherever possible. This means that audit work undertaken for the foreseeable future is being done remotely. How will this be different, how can you prepare and what should you expect from a remote audit?Read our full guidance on this here
What advice do trustees need before they take out a business loan secures on the charity’s property?
Trustees must take financial advice if they wish to secure a loan on property. This is in s.124 Charities Act 2011. It says:
Trustees need advice on:
(a) whether the loan is necessary in order for the charity trustees to be able to pursue the particular course of action in connection with which they are seeking the loan,
(b) whether the terms of the loan are reasonable having regard to the status of the charity as the prospective recipient of the loan, and
(c) the ability of the charity to repay on those terms the sum proposed to be paid by way of loan.
For these purposes proper advice is the advice of a person—
(a) who is reasonably believed by the charity trustees to be qualified by ability in and practical experience of financial matters, and
(b) who has no financial interest in relation to the loan in connection with which the advice is given;
and such advice may constitute proper advice for those purposes even though the person giving it does so in the course of employment as an officer or employee of the charity or of the charity trustees.
So the advice can come from a member of the finance team, or from a trustee so long as the adviser has the ability and experience and is not getting, say, commission on the loan being taken out. Or it could be from someone external such as your auditor.
Whoever is providing the advice will want to understand what you need the loan for/why there is not a better option (e.g. you do not want to dispose of investments currently for a short term cash requirement), what other loans you sought on what terms, or other evidence you have, to establish the terms you have are reasonable, and then to review your cashflow forecasts to demonstrate you will be able to repay the loan installments when due. They can then summarise this in a report to trustees.