Regeneration Through Education Limited (RTE) Report
Introduction
In this report I will be addressing the three main queries that RTE limited are currently facing; Period end adjustments, charity reporting research (comprising of a report on the rationale behind the charities filing requirements, as well as appraising the role and contents of the trustees’ annual report) and a comparison to company filing requirements.
Period End Adjustments
Charities and companies usually organise their accounts over the financial year, which usually runs over a 12-month period. (Anon 2017) You can only run your year end journals once through accounting packages, such as sage, so it is essential that the information that you are entering is correct. This means that all adjustments relating to the financial year must be posted into the charities accounts before year end accounts can be run. I will be addressing three adjustments in this section of the report:
Electricity bills that hadn’t been received by the year end must be entered into the year end journals as accruals, this is because the true electricity bill figure for the year must be shown in the profit and loss account, the accrued electricity bill expense must then be shown on the electricity account. Accruals are adjustments for expenses that have been incurred but are not yet recorded in the accounts. This means that as the electricity bill will relate to the period before the end of the financial year, an adjustment must be made to record this accrual before the year end journals can be run through sage. (Harold Averkamp 2017)
Depreciation charged for the year on the fixtures and fittings. Depreciation can be applied to an asset in one of two ways, either straight line depreciation or reducing balance depreciation. Straight line depreciation is calculated as the cost of the asset, minus the estimated disposal value, divided by the number of expected years of use. Whereas, reducing balance depreciation is calculated using a fixed percentage, on the net value of the asset. (Alan Sangster 2015). Depreciation is used to value the businesses non-current assets (in this case fixtures and fittings) at the end of the financial year, and is charged to the profit and loss account. Depreciation is caused by several factors including physical deterioration, time and depletion.
Stocks of food and drink as counted and valued by the chef and bar staff. This adjustment would be entered into the year end accounts as the closing stock. Closing Stock is part of the cost of sales calculation that appears on the income statement, and is always a credit entry on the income statement. Closing stock also appears on the statement of financial position as part of the businesses current assets, where it is posted as a debit entry.
Rationale
The main requirements for charities with financial years beginning on or after 1 November 2016 are subject to produce an annual report, a set of accounts, as well as submitting an annual return to the charity commission. (Anon 2016) As a result of RTE limited being a charitable company it is subject to a greater number of filing requirements than smaller charities and other charity structures such as trusts or unincorporated charitable associations. RTE limited fall beyond the £25,000 to £1 million bracket that allows a charity to have an independent examination. With an annual turnover of £2.5 million, subsequently they are required to have an external audit. Having a turnover above £1 million means that it is a statutory requirement to have an external audit and the company must adhere to a far greater number of filing requirements as outlined by the charity commission.
All charitable organisations must prepare their accounts on an accruals basis. RTE limited should prepare its accounts in accordance with the applicable statement of recommended practice (SORP), which in this case is SORP 2015 which is linked to the financial reporting standard FRS102. The objective of SORP is to help improve the quality of financial reporting by charities, SORP 2015 is the first SORP to be linked with financial reporting standards. SORP FRS 102 can be followed by any charity and therefore the filing requirements can be very similar. However, RTE limited must follow additional sections of the SORP that relate to companies established under company law. SORP FRS 102 states that charitable companies must adapt their statement of financial activities (SoFA) in order to meet the requirements of company law. In addition to this RTE should produce a summary income and expenditure account as well as preparing a directors’ report. (Anon 2015)
Role of Trustees’ Annual Report (assess the function of the trustee’s annual report)
The annual report provides charities with an opportunity to reflect on the charities performance over the year and how it compares to the trustees’ plans for future periods that were addressed in the last annual report. The annual report then provides the trustees with the ability to highlight the main activities and objectives that the charity has undertaken over the financial year to achieve the charitable purposes at RTE. The annual report allows charities to present to the public the work they are doing, for charities such as RTE limited it is also a legal requirement as a result of the size of the charity. The annual report meets all legal requirements set out by the charity commission and should provide a fair and true view of the charity’s aims, objectives and activities, its structure and its financial performance.
Contents of Trustees’ Annual Report (sum up contents of report)
Due to RTE limited being a charitable company, they are required to adhere to a far greater number of legal requirements in their annual report in relation to them requiring a statutory audit. The charity commission has set out a number of regulations that must be followed, these include: Reference and administrative details; Structure, governance and management; Objectives and activities; Achievements and performance; A financial review; Funds held as custodian trustee on behalf of others; Public benefit statement; Plans for future periods and information on fundraising practice that auditable charities must disclose. The reference and administrative details section states that all charities must include their basic information e.g. the charity name, the charity registration number and the address of the charities main office; The names of all charity trustee’s, custodian trustees or anyone who served as a charity trustee or custodian trustee in the applicable financial year. The structure and governance section states a description of the organisational structure of the charity is required, in RTE’s case they should state they are a limited company, policies and procedure concerning the induction and training of trustees should also be included in this section. The objectives and activities section must include a description of the purposes of the charity, as well as the main activities the charity engages in to increase its charitable purposes; company charity subject to a statutory audit must also provide an explanation of the charity’s main objective that financial year and the strategies set out to obtain that objective, a list of activities undertaken to further its charitable purposes, RTE must also provide details of any significant contributions of volunteers. The achievements and performance section states details of the achievements of the charity during the year, measured by reference to the aims and objectives which have been set must be included by charitable companies. A financial review must be included in the trustees’ annual report, this must include a policy on the reserves held by RTE and why they are held and where funds have been designated; investment performance throughout the financial year, the material investments that RTE owns, details of the principal sources of income as well as a statement of the major risks to which the charity is exposed. The funds held as a custodian trustee on behalf of others section must contain a description of assets which the custodian trustees hold, the name and objects of the charity on whose behalf the assets are held, and details of how the assets will be held and segregated from the charity’s own assets. All charities must produce a public benefit statement as part of the Trustees’ Annual Report, detailing whether charity trustees have followed the guidance given by the commission relating to exercising their powers or duties. RTE must report a summary of the charity’s plans for the future, including aims, objectives and activities planned due to charitable company’s statutory requirement to have an audit. Lastly, there is an additional section that auditable charities such as RTE limited must adhere to. The information on fundraising practice that auditable charities must disclose section outlines that charities must detail the fundraising approach taken by the charity, details of any fundraising schemes to charity is subscribed to, details of any failure by the charity to comply with fundraising standards or schemes, the number of complaints received by the charity, and what the charity has done to protect vulnerable people. (Anon 2016)
Comparison to Company Filing Requirements
There are a number of similarities between the filing requirements for charitable companies and standard companies. Both charities and companies must produce a balance sheet as well as notes to the accounts, and a directors’ report; However, aside from these main similarities there are some key differences between charity reporting requirements and company reporting requirements.
One key filing requirement for charities is to produce a Statement of Financial Activities (SoFA), the SoFA shows the charity’s income and expenditure over the financial year. It includes the total incoming resources and size of the charity, types of incoming resource, what the charity spends its money on, the amount of money spent on fundraising and unspent funds and balances carried forward. Company filing requirements mean that companies must instead produce an income statement, which instead contains company turnover, cost of sales, gross profit, expenses, operating profit, finance costs, profit before tax, tax and profit for the year.
One key difference between charity filing requirements and company filing requirements is tax. Charities are exempt from income tax and corporation tax, while companies are required by law to pay corporation tax as well as producing a company tax return once a year. Charities are also able to claim back some VAT if they are VAT registered with HMRC if the circumstances are in line with normal VAT rules. (Plummer Parsons 2017)
Lastly, one key difference between charity and company filing requirements, is that charitable companies must produce a trustees’ annual report, while companies must produce and auditors’ report. A trustees’ annual report looks into a wide number of requirements that charities must follow as can be seen in the two sections above, such as the structure of the charity, the objectives, aims and activities the charity engages in, a financial review of the company and the future plans for the charity. An auditors’ report looks in to the validity and reliability of a company’s financial statements, it is used to document reasonable assurance that a company’s financial statements are free from error. (Anon 2017) The main difference between the two reports is that the auditors’ report solely looks into the financial statements a company has produced, while the trustees’ annual report looks into a number of different aspects of the charity.
Conclusion
Overall, there are several factors that charities must look into in order to produce a trustees’ report. There are some similarities between the filing requirements for charities and companies, however there are also vast differences between the two, and the trustees’ annual report covers a much broader area than a company’s audit report would.
Bibliography
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