All change for charity accounts 3 - new requirements relating to Key Management Personnel
In my third blog about the new charity accounting rules, I want to cover the requirements in relation to Key Management Personnel remuneration.
The glossary of the FRS102 SORP tells us that 'Key management personnel is a term used by FRS 102 for those persons having authority and responsibility for planning, directing and controlling the activities of the charity, directly or indirectly, including any director (whether executive or otherwise) of the charity. This definition includes trustees and those members of staff who are the senior management personnel to whom the trustees have delegated significant authority or responsibility in the day-to-day running of the charity.'
Both the FRSSE SORP and the FRS102 SORP require larger charities (i.e. those subject to statutory audit) to include details in the Trustees' Annual Report of the arrangements for setting the pay and remuneration of the charity's key management personnel and any benchmarks, parameters or criteria used in setting their pay.
In addition to this, charities reporting under the FRS102 SORP must disclose in the notes to the accounts the total amount of any employee benefits received by trustees and key management personnel for their services to the charity. Employee benefits are defined as: 'all forms of consideration paid by a charity in exchange for the service rendered by employees, including trustees, and include all remuneration, salary, benefits, profit-sharing and bonuses, employer's pension contributions and any termination payments made. For employers with employee members of a defined benefit pension scheme, employee benefits include the change in the net defined benefit liability arising from employee service rendered during the reporting period and the cost of plan introductions, benefit changes, curtailments and settlements.' - so not necessarily straightforward to calculate if you have a defined benefit (final salary) pension scheme!
Charities will need to review the definition of Key Management Personnel against their own structure to decide who should be included within this. For some charities it is likely to include a number of employees but for smaller charities it may just be the charity's manager / chief exec.
Both OSCR and the Charity Commission have published example accounts prepared under the new SORPs which you can access here.
These are really helpful in showing you the kind of detail the regulators are expecting in the disclosures. It's interesting to note that while the SORP says charities may wish to disclose the employee benefits paid to the chief executive or the highest paid employee or even to key management personnel on an individual basis, the regulators haven't chosen to do this in their examples. In an environment where remuneration of charity employees, and in particular chief executives, is creating so many headlines, these new requirements are likely to fuel the fire rather than extinguish the flames!
Next time, I'll cover the new rules in relation to Volunteers, Donations made by Trustees and Trustee expenses.
Jenny Simpson is a partner at Wylie & Bisset LLP and sits on the UK Charity SORP Committee. The blog originally appeared on SCVO's website in March 2016 and has been reproduced with both Jenny and SCVO's permission.