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1. Scottish Charity AccountsA guide to theCharities Accounts (Scotland) Regulations 2006for advisors of smaller charities 2.1 version 2

2. Scottish charity accounts • Charity accounts communicate important information about a charity’s activities • Clear, concise, consistent • One of the principal areas of non-compliance • OSCR themed study of small charities indicated that 70% did not comply with the Regulations 2

3. Scottish charity accounts For whom are charity accounts prepared? • members • funders and donors (present and potential) • business partners (present and potential) • the public • the trustees themselves – to review the performance of the charity • OSCR and other regulators 3

4. Scottish charity accounts Advisors of small charities need to be able to: • encourage trustees to understand why well-prepared, legally compliant accounts are important • understand the appropriate accounting format to use • understand the key terms and accounting principles used in a set of accounts • identify the component parts of a set of accounts • understand appropriate external scrutiny requirements • assist trustees in use of the Receipts and Payments Accounts workpack • understand the reporting timescale 4

5. Scottish charity accounts Where will you find the accounting provisions? • Sections 44 to 46 of the Charities and Trustee Investment (Scotland) Act 2005 • The Charities Accounts (Scotland) Regulations 2006 Where will you find detailed guidance? • OSCR websiteScottish Charity Accounts – A Guide to the 2006 Regulations 5

6. Scottish charity accounts What is the scope of the Act and Regulations? • apply to all charities regulated by OSCR(regardless of size or legal structure) • financial years starting on or after 1 April 2006 • some charities may also need to prepare accounts in accordance with other legislation or regulations 6

7. Scottish charity accounts What do the Act and Regulations cover? • keeping of accounting records • type and components of annual accounts • independent examination or audit of accounts • filing of accounts with OSCR 7

8. Accounting records What does the Act say? Section 44 of the Act requires charities to keep proper accounting records What are ‘proper accounting records’? Section 4 of the Regulations requires accounting records to: - show, day by day, the money received and spent - record the assets and liabilities - disclose the financial position at any time - enable the production of a statement of account in line with the Regulations 8

9. Accounting records In what form should accounting records be kept? Not specified form in the Regulations but examples are given in the guidance: • cash book recording day to day income and expenditure • bank statements with monthly reconciliations • vouchers, invoices, receipts • general ledgers • computer spreadsheets • commercial accounting software with supporting data 9

10. Accounting records How long must accounting records be kept? • Section 44(2)of the Act requires records to be kept for 6 years from the end of the financial year in which they are made. • Time periods may also be governed by other legislation or by agreements with funding bodies. 10

11. The 2006 Regulations What do the Regulations contain? • Preparation of accounts • External scrutiny • Financial year • Consolidated accounts • Connected charities Apply to all charities Apply to some charities 11

12. Types of accounts What types of accounts do the Regulations permit? • Receipts and payments accounts (regulation 9)A summary of all monies received and paid via the bank and in cash during its financial year, along with a statement of balances. • Fully accrued accounts (regulation 8)The costs or income of a particular activity are allocated when the liability is incurred or when there is entitlement and certainty about income, not when it is actually received or paid out. 12

13. Types of accounts Which type of accounts should a charity prepare? This will depend upon: • The size of the charity (gross annual income) • Its legal form • Any provisions in the constitution • Any enactment of Parliament • Any decision by charity trustees or members • Any condition of funding 13

14. Income threshold What is the income threshold for receipts and payments accounts? • gross income* not exceeding £100,000** in a financial year * total income of the charity for that particular year excluding any income that is part of a permanent endowment fund ** Changing in April 2011 14

15. Receipts and payments accounts What should a set of receipts and payments accounts consist of? • Trustees’ annual report (TAR) • Statement of receipts and payments • Statement of balances as at the last day of the financial year • Notes to the accounts Plus • Appropriate external scrutiny report 15

16. Fully accrued accounts When are fully accrued accounts required? • Gross income of £100,000 or more • The charity is a company • The constitution requires it • Any enactment of Parliament requires it • The trustees have decided to prepare accounts on that basis Accounts must comply with the methods and principles of the Accounting and Reporting by Charities: Statement of Recommended Practice (the 2005 Charities SORP) 16

17. Fully accrued accounts What should a set of fully accrued accounts consist of? • Trustees’ annual report (TAR) • Statement of financial activities (SOFA) • Balance sheet • Cash flow statement (if required) • Notes to the accounts Plus • Appropriate external scrutiny report 17

18. External scrutiny of accounts What types of external scrutiny of accounts do the Regulations provide for? All charities must have their accounts externally scrutinised. There are two (previously three) types: • Independent Examination • Audit • (Report from an independent reporting accountant - some charitable companies only) 18

19. External scrutiny of accounts What type of scrutiny must a charity have for its accounts? The appropriate type of scrutiny will depend upon: • the size of a charity (gross income and assets) • its legal form • the type of accounts prepared • any requirement of the constitution • any enactment of Parliament • any decision of the trustees 19

20. External scrutiny of accounts What type of scrutiny is required for receipts and payments accounts? An independent examination (IE), unless an audit is required by: • the charity’s constitution • any enactment of Parliament • a decision of the charity trustees 20

21. Financial year • Date of financial year end (accounting reference date) appears on the Scottish Charity Register • Date to which accounts are prepared • Existing charities entered on register on 1 April 2006 retain their existing accounting reference date • Charities registered after 1 April 2006 may decide their accounting reference date, not less than 6 nor more than 18 months after the charity is registered 21

22. Changing the financial year Charity trustees may specify a new accounting reference date for either: • the current financial year, or • the financial year immediately before the current year Provided: • financial year is not longer than 18 months • may not have 3 financial years exceeding 12 months in any 5 year period (i.e. you can have 2 years in a 5 yr period) • change must be notified to OSCR within 3 months of the decision 22

23. Common non-compliance issues • incorrect format of accounts • no trustees’ annual report • no independent examiner’s or auditor’s report • statement of balances or balance sheet not signed • no Scottish Charity number on the accounts 23

24. Charities Accounts (Scotland) Amendment Regulations 2010 • Come into force for financial years beginning on or after 1 April 2011 • Threshold for preparation of accruals accounts to be raised to £250,000