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Accounting regulations

The Charities Accounts (Scotland) Regulations 2006 sets out the format and independent scrutiny requirements for charity accounts.  These Regulations have been amended and changes introduced in 2011.

Our guidance Scottish Charity Accounts: an updated guide to the 2006 Regulations will assist charities to understand their accounting requirements under the legislation.  The guidance has been updated to reflect the 2011 changes.  We have prepared some Frequently Asked Questions (FAQ's) and answers to assist charities with understanding these changes.

We have also designed a Receipts and Payments work pack to help charities - especially smaller non-company charities - who may not have the resources to employ the services of a professional accountant to prepare annual accounts. The work pack assists charity trustees to fulfill their good governance responsibilities by providing an outline of those areas that must be covered in the Annual Report.

Preparing accounts

Charity accounts must be prepared in one of two ways:

• Receipts & Payments

Receipts & payments accounts are a simple form of accounting that consist of a summary of all monies received and paid via the bank and in cash by the charity during its financial year, along with a statement of balances.

• Accruals

Accounts prepared using the accruals basis allocate the costs or income of a particular activity according to when the liability is incurred or when there is entitlement or certainty about income. This is not necessarily the date on which money is received or paid out.  Accounts prepared using the accruals basis must be prepared in accordance with the methods and principles of the Accounting and Reporting by Charities: Statement of Recommended Practice (the 2005 Charities SORP).

What type of accounts should be prepared?

The charity's gross income for a given financial year will determine the type of accounts to be prepared for that particular year. However, if:

• the charity's constitution says it should prepare accrued accounts
• the charity trustees have taken a decision to prepare accrued accounts
• any enactment says that the organisation should prepare accrued accounts.

then accrued accounts must be prepared even if the charity's gross income would otherwise allow accounts to be produced on the receipts & payments basis.

Guidance

Further guidance about charity accounting and our requirements is available from our Scottish Charity Accounts: an updated guide to the 2006 Regulations.  The guidance is split into three areas:

Part 1: The Overview should be read in conjunction with either Part 2 or Part 3 depending on the type of accounts a charity prepares.  It contains two flow charts to help charities determine the type of accounts they should prepare and the type of external scrutiny to which they should be subject.

Part 2: Receipts and Payments accounts in addition to the guidance, there are further examples of receipts and payments accounts available as well as a work pack to help charities prepare receipts and payments accounts.

Part 3: Fully Accrued Accounts.

Group accounts

Any parent charity where the gross income of the group (the parent charity and its subsidiaries) is £500,000 or more after consolidation adjustments, must prepare group accounts under the Charities and Trustee Investment (Scotland) Act 2005 and associated Charities Accounts (Scotland) Regulations 2006. However, where a charitable company is required by section 399 of the Companies Act 2006 to prepare group accounts, those group accounts are prepared under the Companies Act 2006, as well as the above Act and Regulations.  Please read the Accounting and Reporting by Charities: Statement of Recommended Practice (the SORP 2005) for further details.

External scrutiny

Under statutory requirements, the accounts of all Scottish charities must also be externally scrutinised. That is, someone who is independent of the charity must review the accounts and produce a report, attached to the accounts, that highlights any issues to the reader.

Please read our External Scrutiny page for further information and guidance on how to ensure the correct form of external scrutiny is applied to charity accounts.