Financial reporting by smaller charities: drivers of the cash/accruals choice

All UK charities are required by law to publish annual accounts. This paper investigates the choice faced by smaller charities of whether to use the accruals (the Charities SORP) or receipts and payments (R&P) basis. It contributes to the literature on small charity financial reporting through a study of reporting practice by 90 smaller Scottish charities, supplemented by interviews. In examining drivers behind the choice of approach, it found that both accruals and R&P accounts were considered legitimate means of reporting and choices were driven largely by the perceived preferences of users of accounts rather than costs.IMPACTWhile receipts and payments (R&P) based accounting has only been available to Scottish charities in the £100,000 to £250,000 income band since 2011, it is already being used by nearly 40% of charities in that band. Charities consider that both the accruals and R&P bases are legitimate means of reporting to stakeholders and the perceived requirements of the stakeholder influence the accounting choice to a greater extent than cost-constraints. Both approaches have their merits in a framework of charity regulation with neither being considered more legitimate than the other. These findings are relevant to regulators and practitioners internationally when considering the most appropriate basis of reporting for the smaller charity.