THE IMPACT OF SORP2 ON THE UK CHARITABLE SECTOR: AN EMPIRICAL STUDY

Abstract

Charities and voluntary organisations represent an increasingly important sector of the British economy. There are now over 175,000 charities registered with the Charity Commission in England and Wales (Charities Aid Foundation, 1990, p. 6). This excludes Scottish and other charities (such as churches and universities) which are exempt from compulsory registration and a large number of charities which have not registered. From approximately £7bn in 1980 (Charities Aid Foundation, 1987), the sector’s income had risen to about £15bn in 1989 (Accountancy, July 1989, p. 16), equivalent to approximately £8.7bn at 1980 prices, an increase in real terms in excess of 20 per cent. However, despite their economic importance, there has been comparatively little attention paid to the provision of an adequate monitoring and control system, which would enable the performance of individual charities to be effectively evaluated and inter-charity comparisons to be made (see, for example, Smith, 1990). External financial reporting, in particular, has been characterised by a diversity of accounting practices and a paucity of accounting guidelines. The traditional lack of regulation within the charity sector has, however, been challenged recently. In May 1988, the introduction of SORP2 (Statement of Recommended Accounting Practice 2) brought a measure of authoritative guidance to the sector (ASC, 1998a). SORP2 is thus a watershed in the development of accounting practices within the charity sector and to reduce ‘the (current) diversity in accounting practice and presentation’ (ASC, 1988a).