CCH Accounts Production - Charity: FRS 102 User Guide

Features not yet available

The following is not currently available:

• Support for Northern Ireland non-company charities
• Exception report
• Lead schedules
• Formatted trial balance

Create client in CCH Central

When setting up an FRS 102 Charity Client, in the Create Client Wizard Main Details tab, the Contact Type is Not for Profit.
In the Accounts tab, the options to choose are under Type, select Charity and under Entity please select Charity (FRS 102).

Create new Charity FRS 102 accounting period for an existing client

On the Accounts Production tab, click in the grid to create a new accounting period:

1. Type: select "Charity".
2. Entity: select "Charity (FRS 102)".
3. Set other fields as required and click OK.
4. Double-click the accounting period row on the grid to load the accounts production screen.

Types of charity

A charity is an entity registered as such, and should be either:

• Charitable companies, usually limited by guarantee; or
• Non-corporate trusts or similar bodies established by a governing document.

This pack does not support ROI unincorporated charities.

Charitable companies

UK Charitable companies are required to follow the accounting requirements of the Companies Act 2006, whereas ROI Charitable companies are required to follow the accounting requirements of the Companies Act 2014 (as amended by the 2017 Act). In both cases, they must also follow the requirements of FRS 102 and the Charities SORP.

A major feature of the FRS 102 formats for trading companies is the availability of small company exemptions under Section 1A. This exemption is not available for charities and therefore the full requirements of FRS 102 and the Companies Acts will apply.

Charities can take advantage of those exemptions which apply to small companies not applying section 1A (eg exemption from cash flow statements and certain directors' report disclosures); however, there are overlapping requirements from the Charities SORP, such as the requirement for a cash flow statement for charities that are "large" by the SORP's standards. Therefore, the user is required to designate "size" twice in the client pack: once according to the Companies Act, once according to the SORP. 

As a result, there will be some situations where disclosure is not required by company law but has to be made to satisfy the SORP, and vice versa. Information about this is provided in the guidance linked to the relevant database items.

Unincorporated charities (note: supported for UK only)

UK unincorporated charities must follow the requirements of the Charities Act 2011. The disclosure requirements are driven almost entirely by the Charities SORP and FRS 102, with minor additions from the Charities Act itself. 

There are different requirements for unincorporated charities based in Northern Ireland and these are not supported.

Funds analyses

SORP 4.9 The columns of the SOFA must be used to distinguish restricted income funds, which may only be spent for a particular purpose of the charity, from unrestricted funds, which can be spent on any of its purposes, and endowment funds.

SORP 4.13 A charity may add additional columns to the SOFA to present material funds or activities on the face of the statement rather than in the notes. Any additional analysis of this type provided on the face of the SOFA must make clear the class of fund (unrestricted, restricted or endowment) in the column title. In providing additional information, a balance needs to be struck between the provision of additional information and the resulting complexity of the statement.

The formats therefore provide:

• The expected split between restricted and unrestricted funds,
• A column for endowments, and
• A separate column for a specified material fund where appropriate (this fund might have more than one element, which would be analysed elsewhere)

For comparatives, the SORP requirement is:
SORP 4.2 FRS 102 requires that comparative information must be provided for all amounts presented in the SOFA. This SORP requires that the comparative information provided for the total funds of a charity must be presented on the face of the SOFA. Comparative information provided for the separate classes of funds, if any, held by a charity may be presented either on the face of the SOFA or prominently in the notes to the accounts.

This requirement is met as follows:

• On the SOFA, there is a full breakdown by fund of the prior year figures, usually shown on the same page as the current year but with a user option to show it on a separate page;
• In notes tying into figures from the SOFA, a similar analysis by fund is provided. Where the notes layout does not follow the SOFA layout, an additional table is provided to match that shown on the SOFA.

Charities Act audit vs Companies Act audit

Charitable companies which are above the Charities Act thresholds for an audit but below the limits for an audit under the Companies Act can choose between the two regimes for their audit. There are some technical differences between the requirements for audit under the Companies Act and under the Charities Act but these are not particularly significant. The differences that would be noted by readers of the financial statements are:

• The requirements under which the audit is undertaken are described differently in the audit report.
• Where a Companies Act audit is not undertaken, a statement must be made on the balance sheet that the trustees have taken advantage of the relevant exemption from that audit, even though a Charities Act audit is being undertaken instead.

Given that the differences between audits under the two regimes are not particularly significant, it is common practice for charitable companies to be audited under the Companies Act requirements even though the requirement for that audit comes from the Charities Act. 

Balance sheet items

Some codes have been added to the balance sheet sequence for charity specific assets:
a) Heritage assets, these now have a full two column fixed asset style analysis.
b) Performance related investments and mixed motive investments have similarly been catered for. In practice these categories are seldom used but they are described in the SORP and may arise in some circumstances.

Codes between 9600 and 9990 relating to conventional types of reserve have been removed and are replaced by an analysis of reserve movements within the ranges created for each of the fund types.

SOFA coding - fund analysis

The Charities SORP requires analysis by funding type. This is achieved through the nominal ledger coding, which has four separate analyses for income and expenditure in the sequences:

• from 1000 for unrestricted funds,
• from 2000 for material funds,
• from 3000 for restricted funds and
• from 4000 for endowment funds.

The codes run in the same sequence (ie each code within restricted funds would share the final three digits with the equivalent code in the unrestricted funds sequence) and the codes all run in the same order. Not all codes (or the consequent name ranges) are replicated for endowment funds, which have a lesser range of application.

SOFA coding - expenditure on charitable activities

The Charities SORP identifies the likely existence of multiple charitable activities and requires income and expenditure relating to these multiple activities to be disclosed where material and relevant to the understanding of the financial statements. 

The formats therefore provide analysis of direct costs between up to 7 charitable activities within each funding type apart from endowments. There is a consistent coding structure across the funds for each activity.

SOFA coding - income

A similar analysis by "activity" is available for charitable income, where required. However, it is rare for each activity (as identified above) to be financed by separately identified income and therefore users should consider whether it is most helpful to either:

• analyse by the purpose of the income, by using the same categories for income that were applied to expenditure (ie, by activities), or
• analyse by the sources of income (eg government sources vs individuals), or
• not analyse by categories at all.

Note that income is already broken down by type (eg grants and donations).

SOFA coding - collection and apportionment of support costs

See also Appendix 1: Support costs.

The Charities SORP requires a distinction between:

• Direct costs - which result directly from undertaking a charitable activity (eg grants made); and 
• Support costs - which facilitate all charitable activities (eg general administrative costs).

The SORP further requires that where there are multiple material activities, the financial statements should show how the support costs are apportioned between the activities to provide total costs for each activity and fundraising.

From Master pack 24 onwards, the approach to recording and apportioning support costs has been simplified. The active codes for support and governance costs are:

Support codes  - recording the costs  
Wages    5100-5149
Depreciation    5150-5173
Leases    5177-5179
 Support cost categories definable by user
1    5180        2    5181        3    5182        4    5183        5    5184
6    5185        7    5186        8    5187        9    5188        10    5189

Support code  - apportioning those costs to activities etc
5195    Support recharge to activities etc
This single code should be used to recharge the total costs (ie 5100-5189) to the individual activities, fundraising and material other expenditure. Therefore the section 5100-5195 will cancel to zero. Where relevant (see below) this code can also recharge support costs to governance.

Governance codes - recording the costs   
Wages    5300-5329
Depreciation    5330-5373
Leases    5377-5379
Transferred from support 5380 (not strictly necessary)
Audit fees    5410-5412
Accountancy    5413
Legal and professional    5414
Governance categories definable by user  
1    5430        2    5431        3    5432        4    5433        5    5434

Note:

• The SORP only requires a total for governance costs. Where the user decides not to disclose an analysis of governance, all governance costs apart from audit fees could be posted to a single code. However, it will often be helpful to analyse governance within the nominal ledger even where the financial statements will not show this analysis.
• From the 2019 SORP onwards, governance costs are an element of support costs rather than a separate category of costs. Therefore it would not normally be appropriate to apportion support costs to governance before then apportioning the total governance costs to activities etc. However, where users want to do this, they would journal between 5185 (out of support costs) into 5380 before then apportioning the governance total using 5450 as set out below.

Governance code  - apportioning costs  
5450    Governance recharge to activities etc
This single code should be used to recharge the total costs (ie 5300-5434) to the individual activities, fundraising and material other expenditure. Therefore the section 5300-5450 will cancel to zero.

Codes to recharge into
The various activities have single or double recharge codes for each fund element, eg:

1260    UF CA1 - Share of support costs for charitable activity 1, unrestricted fund
1280    UF CA1 - Share of governance costs [NO LONGER NEEDED - ALL CAN BE POSTED TO 1260] 
The previous additional code 1280 for recharging governance costs separately has been left in place for the convenience of users who wish to accumulate and recharge governance separately.

Note that the individual elements of the support costs (eg wages, depreciation) are NOT individually recharged into separate codes; ie, support costs are apportioned into the activity as one figure for each activity/fund combination.

Support costs are similarly apportioned to fundraising, where appropriate, eg:
1182    UF Fundraising support costs for fundraising, unrestricted fund
1191    UF Trading support costs
1192    UF Trading governance costs [NO LONGER NEEDED - ALL CAN BE POSTED TO 1191] 
Note that the distinction between trading and fundraising (arising from an earlier SORP) is no longer required; trading is regarded as a part of fundraising. However, the original categories (fundraising, trading, investment management) have been retained for analysis where desired.

Note also that there are new codes for the support element of material costs disclosed on the SOFA, eg:
1901    UF Material other expenditure - share of support for material costs figure, unrestricted fund

Fund analysis

The basic fund analysis is activated by making nominal ledger postings to the relevant accounts: Unrestricted funds 1000 to 1999, Material funds 2000 to 2999, Restricted funds 3000 to 3999 , and Endowment funds 4000 to 4999 (see above).

Additional fund analysis, where appropriate, is provided through the statutory database.

Restricted funds

Within the restricted funds node of the database, various options are presented (and similar options appear in the area for each type of fund):
a) An introduction to the note, with default text that should be tailored to the circumstances of the charity;
b) An analysis of fund movements;
c) Three free format text paragraphs.

Selecting the “Analysis of movements” grid opens the following input screen:

This database table allows the user to input a detailed fund analysis. Note the key features (from MP 24):

• The grid (and the corresponding note) picks up the total opening/closing balances and movements, as shown on the SOFA.
• Where a pension fund balance is included in this, it is excluded so that pension fund balances can be aggregated elsewhere.
• The unallocated balances for Opening, Income etc will by default be treated as the first fund in the list; therefore the user needs only to enter the name for this fund.
• When the user enters additional funds, any values will be deducted from that default first fund.
• If there are reserves for revaluation or hedging included in restricted funds, they should be disclosed by using one of the analysis rows.
• On the format, the comparatives are shown on a separate table below the current figures. Therefore, the user does not need to match up the fund references to the previous year if new funds are inserted or the list is rearranged.

Material fund

A separate material fund, where it exists, is treated in the same way as restricted funds as set out above.

Endowment funds

Endowment funds are treated in the same way as restricted funds, except that the “Analysis of movements” tab, and the note itself, also allows a distinction between “Permanent” and “Expendable” endowments.

Unrestricted funds, including designated funds

This  is treated in the same way as restricted funds, as set out above. The unallocated balance is described by default as General unrestricted funds and (from MP 24) is shown on the grid so that the total balance is reconciled.

Note that designated funds, by definition, are part of the charity’s unrestricted funds which the trustees have decided (for the present) to use for a specific purpose. There is no external restriction on such funds and they can be reassigned whenever the trustees wish.

Qualified audit reports

For all charities there are two separate database fields which determine the presentation of a qualified report.

Here the “Select Qualified or Unqualified Report Type” node links into #cy155 which simply determines whether the report is or is not qualified (0 = unqualified, -1 = qualified). The qualified audit report type node links to #ar8 which determines what kind of qualification is given, there are four types:
1 = Adverse
2 = Disagreement
3 = Limitation of scope
4 = Disclaimer (the drop-down lists these options alphabetically).

Strictly, only “Disagreement” and “Limitation of scope” opinions should be referred to as “qualified” all four opinion types can be referred to as “modified”. Unlike the main FRS 102 formats, on the audit report page itself the lines for qualified and unqualified opinions are combined (ie there is not a separate sequence for each type), and a combination of coding within the standard paragraphs and line suppression on the format page itself give the correct text in each situation.

The analysis given by #ar8 derives from a detailed analysis of the examples provided by the FRC. Although the contents of the qualification must reflect the specific circumstances of the charity (and the FRC stresses that firms should use their own wording where this better describes the situation), the overall structure for each type of report is largely consistent and can be used as a framework within which the more specific wording can be placed. The determination of the type of audit report should be the starting point for drafting the specific wording.

Incorporation of directors’ report and strategic report into trustees report

The SORP requires the preparation of a trustees’ report whereas the Companies Act requires the preparation of a directors’ report. For a charitable company, the trustees' report can meet the requirements for a directors’ report and the title of the trustees’ report includes the phrase “including directors’ report” for all charitable companies.

Charitable companies which are not small are also required to prepare a strategic report (there is no equivalent for unincorporated charities). Although the legislation suggests that the strategic report should always be a separate report from the directors’ report, the Charity Commissions have agreed with the FRC that a compliant trustees' report would also meet the requirements for a strategic report, so that a separate report need not be prepared. However, in order to meet the strict legal requirements, it is necessary to highlight within the trustees report those paragraphs which meet the requirements for a strategic report. This is controlled by the following database trigger:

This triggers additional disclosures within the trustees’ report. The main additional disclosure is to insert a new paragraph above the “Achievements and performance” section stating that this, and the “Financial review” section meet the requirements for a strategic report.

In addition to this:
a) the title of the trustees’ report also refers to the inclusion of a strategic report; and
b) the signature section of the trustees’ report refers to the fact that the trustees are also approving the strategic report included within it.

Staff costs

Direct posting method: It is possible to post a full analysis of staff costs directly within the codes relating to various activities in the SOFA. The analysis can be posted as:

For example, the direct costs for unrestricted funds wages relating to the first charitable activity would be posted to:

1200    UF CA1 - Wages and salaries

Where this method is used, the only subsequent adjustments that will be required relate to the apportionment of the total in support and governance costs. This process is set out in the Nominal chart section and also summarised below.

Indirect posting method: Many charities will have accumulated all (or part of) their staff costs in total and initially these might be posted into support costs (eg, all wages and salaries might be charged to 5100). However, some of these are not true support costs (ie theyt directly arise from charitable activities or fundraising etc). Where this is the case, the direct staff costs etc  need to be transferred out of support costs into the direct costs codes. It is important to make this transfer by crediting the original code, eg 5100, NOT 5195 - ie, the transfer should reduce the support costs rather than be treated as an apportionment.

For instance, if support costs initially included all wages posted to 5100, then any wages which directly arose from charitable activity 1 unrestricted funds would be transferred out:

• Debit the wages code 1200
• Credit code 5100 to remove that element of wages from the support area entirely

The remaining wages would be left in 5100 and form part of the total support costs, which will need to be apportioned to the various activities as explained below.

Depreciation and impairment

Direct posting method : Similar to staff costs, depreciation and impairment are analysed between the various activities within the SOFA using the codes.

The depreciation figures posted should include all depreciation and impairment amounts and any loss on disposal of tangible and intangible assets. Where this method is used, the only subsequent adjustments that will be required relate to the apportionment of the total in support and governance costs. This process is set out in the Nominal chart section and summarised below.

Indirect posting method: This works in the same way to the indirect posting method for staff costs, with the initial postings of all costs into the support or governance codes shown above (eg 5152). Any reallocation of costs directly arising from activities would be made by crediting the original posting (eg 5152) and debiting the individual activity codes. The balances remaining in support and governance would then be apportioned as set out below.

Apportionment of support and governance costs

As set out in the Nominal chart section, the balance of support costs (including governance) are then apportioned as follows:

• Credit the apportionment codes 5195 (support) and 5450 (governance) with amounts equal to the net balances remaining in those sections, therefore reducing the overall balance in 5000-5499 to zero. Note that these two codes are used for all apportionment; there are not separate codes for wages, depreciation etc. 
• Debit the "share of support" codes set up for each activity and fundraising, split by fund, eg 1260  UF CA1 - Share of support costs. Note that the governance share (using code 1280 in this instance) does not have to be shown separately at the activity level since this information is not required, and code 1260 can be used instead.

It is not necessary to apportion support costs to governance before then apportioning the governance total. However, where users want to do this, they would journal between 5185 (out of support costs) into 5380 before then apportioning the governance total using 5450.