Going concern reporting
It is of little surprise that there will be renewed focus on going concern at present, given the continued impact the COVID-19 pandemic is having on charity finances. In a recent report undertaken by Pro Bono Economics in conjunction with Charity Finance Group and the Chartered Institute of Fundraising, the loss of income was made clear, with one in five charities reporting that their income in November and December 2020 was less than half of normal levels. The inability to hold fundraising events and keep their retail shops open due to lockdown measures in places are seen as being two of the principal reasons for this decrease.
Trustees have a responsibility to manage their charity’s finances responsibly, and this will include ensuring that their reporting of going concern issues in the annual report is an accurate representation of the position faced by the charity. As a reminder trustees need to consider whether it is appropriate to prepare the financial statements on the basis that the charity will remain a going concern for a minimum period of 12 months from the date that they approve those financial statements, include disclosure of those factors that support the conclusion that the charity is a going concern along with a balanced, proportionate and clear disclosure of any uncertainties that make the going concern assumption doubtful (or a statement that there are no such uncertainties). Where uncertainties exist additional disclosure is also required in the trustees’ report.
Trustees should document their assessment of going concern, which is likely to involve the preparation of cash flow forecasts to ensure that the charity will continue to be able to operate with the resources it is likely to have available. This is no mean feat for charities dependent on voluntary income in the form of donations and fundraising, and the high levels of unpredictability in their income levels as a result. Trustees may find the topical guidance published by the accountancy bodies ICAS and ICAEW in their publication ‘COVID-19 and going concern’ helpful in this regard, as although aimed at small and medium businesses, many of the issues that need to be considered are similar. Specific going concern guidance for charity trustees is also available from ICAS.
Charities should expect increased scrutiny of their going concern assessment, with auditors now subject to toughened requirements in this area following recent revisions to the auditing standards. The charity’s advisers will be able to advise you on matters to consider and reporting obligations, although it should be remembered that the conclusion on whether a charity is a going concern or not is one for the trustees to make. Auditors and Independent Examiners will form a view on whether that conclusion has been properly made and adequately disclosed.
Trustees are reminded that where their charities are experiencing severe financial difficulty and are at risk of failure that they will have a responsibility to report this to their regulator.