Shaping the regulation of charity accounting and reporting
Research has significantly influenced charity accounting, reporting and legislative frameworks in the UK and Republic of Ireland, playing a key role in framing reform of the UK’s mandatory accounting and reporting by charities.
The research, led by Ciaran Connolly and Noel Hyndman, utilised novel and far-reaching engagement with stakeholders and extensive document analysis, to underpin the reframing of accounting, reporting, governance and regulation in the UK and Republic of Ireland's charity sectors. This has included contributions towards developing the current Statement of Recommended Practice (SORP), which was published in 2014, ongoing work in revising the next SORP, and producing Northern Ireland’s legal reporting requirements in 2015.
In 2009, Connolly, Hyndman and McMahon (now McConville) were commissioned by the Charity Commission and the Office of the Scottish Charity Regulator (OSCR) to investigate how the accounting and reporting by UK and Republic of Ireland (RoI) charities could be made more effective via SORP. The SORP was produced jointly by these regulators and was required to be followed by all company charities and non-company charities above a particular income threshold in Britain (initially best practice in Northern Ireland and RoI, and subsequently mandatory in Northern Ireland).
This research, which engaged with approximately 1,000 stakeholders, represented the most substantial SORP engagement exercise ever undertaken. Initially published as an official Charity Commission / OSCR report and subsequently in the British Accounting Review, the research’s key recommendations were:
With respect to the Trustees’ Annual Report:
- All stakeholder groups highly valued the reporting of performance, achievement and governance.
- There was strong support for a narrative approach to complement / interpret financial disclosures.
- Static standing information should be removed from the main body of the Report.
On the application of SORP for smaller charities:
- Given that many charities are relatively small, the SORP should be written primarily for them.
- This provided legitimation for the SORP, enhancing it as a powerful tool to drive improvements in charity accounting and reporting.
On the study’s stakeholder engagement process:
The team advanced this work by undertaking major studies of efficiency and effectiveness reporting, developing frameworks for analysing charities’ publicly available information and focusing on stakeholders’ needs and information “accessibility” and “assessability”. The team found that transparency with regard to both efficiency and effectiveness-related information was weak, concluding that such limited transparency negatively affected less powerful stakeholders (particularly beneficiaries) and better reporting could assist in gaining legitimacy, building trust and sharpening decision making.
Funded by Chartered Accountants Ireland Educational Trust, Connolly, Hyndman and Liguori went on to conduct comparative research on charity reporting (UK v RoI) when major changes in regulation and accounting requirements were being considered in each jurisdiction. Aspects of this research, published in book format, found that the standard of reporting by RoI charities was significantly weaker than that of their UK counterparts. Finally, as part of this project, the researchers explored how charity accountants understand, interpret and legitimate the introduction of accounting / reporting changes in the SORP. The researchers presented their findings in October 2020 to inform deliberations regarding the next SORP (expected 2022), with the importance of the charity sector’s culture being highlighted as a determinant of the legitimation and successful embedding of change.
The team’s work has impacted on charity accounting, reporting and legislative frameworks in the UK and RoI, playing a key role in the revision of the SORP which is now mandatory in the UK and ‘best practice’ in RoI (likely to become mandatory). The team contributed to the introduction of legislation which made adherence to the SORP mandatory in Northern Ireland. Reflecting on the team’s impact on charity accounting, reporting and governance, the Head of Compliance at the Charity Commission for Northern Ireland (CCNI) and Joint Chair of the UK and Ireland Charities SORP Committee, stated:
"Overall, I believe your work (and your co-operation with CCNI in what we seek to do) has facilitated better regulation, better governance and better accountability of the sector. Such helps the health and growth of the sector, and contributes to the building of increasing and improving social capital. I am sure that we will find many ways to continue this co-operation going forward."
Shaping current SORP
The team’s review of how charity reporting could be more effective provided the basis for the current SORP. Aspects of SORP that arose directly from the report’s conclusions include:
- That reporting requirements take account of charity size.
- The Trustees' Annual Report must summarise the charity’s main achievements.
- The Trustees' Annual Report should focus on information relevant to the charity’s stakeholders and tell the charity’s story.
Developing legal requirements
In May 2014, Connolly and Hyndman were invited to become members of the Department for Social Development working group that produced the 2015 legislation relating to accounting and reporting by Northern Irish charities.
Recognition in Academy for Social Sciences
The team’s research was highlighted as representing good practice in the 13th edition of Making the Case for Social Sciences:
"The research has had a major influence on charity accounting, reporting and legislative frameworks within the UK and Ireland. Their work…was instrumental in the form and content of the 2015 Statement of Recommended Practice (SORP) for charities (something acknowledged by both the Charity Commission and OSCR)."
Reference is also made to the team’s involvement in drafting Northern Ireland-related legislation:
"The knowledge gained by the researchers also led to their direct input into the Charities (Accounts and Reports) Regulations (Northern Ireland) 2015 legislation… This was viewed as improving the regulatory and accounting basis for the Northern Ireland charity sector, and placing it on a similar footing to other parts of the UK."
SORP development to date and going forward
Hyndman has been contributing to UK and RoI charity reform via membership of the SORP Committee as the only academic since 2006. Hyndman:
- Organised and presented at a conference, held in October 2013, on the consultation of the draft SORP 2015 which was arranged by Queen's University Belfasts’s Centre for Not-for-profit and Public-sector Research and CCNI, with over 150 attendees including politicians, members of the legal and accountancy professions and government representatives, and feedback used to finalise SORP 2015 and the implementation of new NI regulatory arrangements.
- Spoke at ‘PMM Live! 2017: Charities in the public service space and beyond’ in the House of Lords in October 2017 which highlighted the SORP’s contribution.
- Was a member of the Governance Working Group charged with updating Modules 1 and 9 of the current SORP (2018-2019).
- In October 2020, presented research and facilitated discussion on legitimation and the successful embedding of accounting and reporting change to the SORP Committee, which will inform the SORP Committee and regulators in shaping the next SORP.
The team’s comparative research (UK v RoI) attracted coverage in the Irish Times in September 2017. Commenting on this study, CAI’s President acknowledged that it demonstrated the need for RoI’s relatively new Charities Regulatory Authority "to improve the accountability and transparency of the sector". Subsequently, CAI asked Connolly to provide annual CPD courses on charity reporting for a range of stakeholders (2017-present), with five having been delivered to date.
Government debate in Northern Ireland
In December 2017, Connolly, Hyndman and Liguori presented this research as part of the Knowledge Exchange Seminar Series, which is jointly organised by the NI Assembly and local universities, and brings research findings to the attention of Northern Ireland policy makers and the wider public sector. As a consequence, Hyndman was invited by the Northern Ireland Comptroller and Auditor General to address the NIAO, and was subsequently appointed to the NIAO’s Advisory Board, and as Chair of its Audit and Risk Assurance Committee.
REF 2021 case study
Danielle McConville (previously McMahon)