Common Mistakes in Charity Financial Reporting

Most charity trustees are passionate, well-intentioned, and working hard to do the right thing. But charity financial reporting has specific rules — and even experienced treasurers can fall into common traps that create problems at the independent examination stage or with the Charity Commission.

This post covers the mistakes we see most often in charity accounts and trustees' annual reports, and — more importantly — how to avoid them.

Most financial reporting mistakes in charities are not the result of dishonesty - they are the result of complexity. Charity accounting has its own rules, and they don't always work the way general accounting does

Mixing Up Restricted and Unrestricted Funds

This is the single most common issue found in charity accounts — and it matters a great deal. Restricted funds are income given for a specific purpose by a donor or funder, and they can only be used for that purpose. Unrestricted funds are available for the charity to use at its discretion.

Mixing the two — whether by spending restricted funds on general costs, or failing to show them separately in the accounts — is a serious error. It can indicate a breach of the donor's conditions, which in turn is a matter of material significance that your independent examiner has a duty to consider reporting to the Charity Commission.

To avoid this, make sure every income source is correctly tagged to the right fund in your accounting records from the moment it's received — not retrospectively at year end.

Incomplete or Missing Bank Reconciliations

A bank reconciliation confirms that the balance in your accounting records matches the balance on your bank statements at a given date. Your independent examiner will check this as a core part of their work.

Unreconciled differences — or accounts that haven't been reconciled at all — are one of the most common reasons examinations are delayed or queries raised. Reconcile all bank accounts at the year end, investigate and resolve any differences, and keep clear records showing how you've done this.

Forgetting the Statement of Assets and Liabilities

Charities preparing receipts and payments accounts (the simpler format available to smaller charities) are still required to produce a Statement of Assets and Liabilities as at the year end. This sets out what the charity owns and owes — cash balances, equipment, amounts owed to or by the charity, and so on.

It's frequently omitted, particularly by very small charities or those where the treasurer is new. Without it, your accounts are incomplete and cannot be independently examined or filed correctly.

Not Disclosing Related Party Transactions

A related party transaction is any financial arrangement between the charity and someone connected to it — a trustee, a member of their family, an employee, or an organisation in which a trustee has an interest. Examples include paying a trustee for professional services, purchasing goods from a company owned by a trustee's spouse, or lending money to a connected person.

These transactions are not necessarily improper — but they must be properly disclosed in the accounts. Failure to disclose is a compliance issue and your independent examiner is specifically directed to check for this under CC32. If you're unsure whether something counts as a related party transaction, err on the side of disclosure.

Filing Accounts Late

Charities registered with the Charity Commission in England and Wales must file their accounts within ten months of the financial year end. Late filing is surprisingly common — often because trustees underestimate how long it takes to complete the accounts, commission an independent examination, and submit everything to the Commission.

The Charity Commission publishes a list of charities that file late, which is publicly accessible. Repeated late filing can result in a formal warning, compliance case, or damage to your charity's reputation with funders and donors.

Build your timeline backwards from the filing deadline

Work back from your ten-month deadline to set clear dates for completing your draft accounts, sending them to your examiner, returning them with queries answered, receiving the final report, and submitting to the Commission. Share that timeline with everyone involved.

An Inadequate Trustees' Annual Report

The trustees' annual report is a legal requirement — not an optional summary. It must set out the charity's purposes and activities, describe what you did during the year, explain how your work delivers public benefit, and include certain financial disclosures. The level of detail required depends on your income level, with additional requirements for larger charities.

Common problems include reports that are too vague, don't reference the financial figures, fail to mention key activities or changes during the year, or simply copy last year's report without updating it. Your independent examiner will check that the report is consistent with the accounts — if they don't match, queries will follow.

Using the Wrong Accounting Basis

Charities can generally choose between two accounting bases — receipts and payments (simpler, cash-based, available to non-company charities with income under £250,000) and accruals accounting (more complex, required above £250,000 and for all charitable companies). Using the wrong basis — or switching between the two without understanding the implications — creates problems at the examination stage.

If your income is approaching £250,000, start planning for the transition to accruals accounting well in advance, ideally with the support of an accountant familiar with the Charities SORP.

Good charity financial reporting isn't just about compliance - it is about trust. Donors, beneficiaries, and regulators all rely on accurate, transparent accounts to have confidence in the organisations they support

Practical Steps to Avoid These Mistakes

• Keep accounting records up to date throughout the year — don't leave everything to the year end
• Tag every income transaction to the correct fund at the point of receipt
• Reconcile your bank account(s) monthly, not just at year end
• Keep a running list of any related party transactions during the year
• Set your filing deadline date on day one of the new financial year and plan backwards from it
• Read Charity Commission guidance CC15d on reporting and accounting requirements for your income level
• Appoint your independent examiner early — don't wait until the accounts are finished

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