Financial reports are a universally accepted way of assessing the health and well being of a company. Financial reporting standards are mandated in law (the Companies Act, 2014), and provided by the Financial Reporting Council (FRC) for the UK and Ireland.
Financial reporting gives business owners an account of the use of their funds showing movements in the value of the assets, the cost of sales and any profit from activities. Nonprofit companies also have to provide an account of the business but face unique challenges. Rather than shareholders, they have stakeholders. Nobody owns the assets - the nonprofit company sets out how these assets have been used to realise the best interests of the company's beneficiaries or purposes.
Devised by a specialist Committee established by the FRC, the Statement of Recommended Practice (or SORP) for Charities provides a structured way for charities to provide an account of their business. The Charities SORP provides information in a way that reflects the particular characteristics of charities.
As well as the usual measures of financial performance, the trustees of a charity need to provide a much greater level of analysis to stakeholders. This covers:
Even though the SORP for charities is not yet mandatory in Ireland, it is already used by 325 Irish charities on a voluntary basis. It is strongly recommended by lead agencies like Charities Institute Ireland, Carmichael Centre and The Wheel.
It’s widely expected that the Charities Regulator will soon mandate Charities SORP for charities in Ireland, meaning it will no longer be a voluntary standard.
For this reason, charities in Ireland should take a particular interest in the current round of consultation being led by the FRC Committee on Charities SORP, which includes three participants from Ireland.
The Committee are currently seeking views on suggestions to improve the Charities SORP - the closing date for submissions is December 11th.
For further details on financial reporting for this sector, or to learn more about individual organisations, explore our database here.