Diocesan Annual
Report and Financial
Statements Guide
3rd Edition
25 August 2006
Contents
page
Preface
3
Executive Summary
4
1.
Scope and Aims
6
2.
Trustees’ Annual Report
9
3.
Structure of Financial Statements
32
4.
Funds: Aggregation and Consolidation
39
5.
Trust Funds
43
6.
Properties
45
7.
Accounts governed by Measure
56
8.
Provision for Pensions and other Retirement Benefits
60
9.
Gross and Net Presentation of Assets and Expenditure
65
10.
Other Income and Expenditure Information
67
11.
Summarised Financial Statements and Summary Financial Information
74
12.
Implementation of the Guide
76
Appendix I: Membership of the Working Group
77
Appendix II: History and Background to the Guide
78
Appendix III: Legal and regulatory requirements
79
Appendix IV: Draft Risk Register
82
Appendix V: Model format Trustees’ Annual Report
87
Appendix VI: Model Summary Information Return
100
Appendix VII: Guidelines for the SOFA
103
Diocesan Annual Report and Financial Statements Guide - 1
Appendix VIII: Model Statement of Financial Activities, Income & Expenditure Account, Balance Sheet,
Cash Flow Statement and Related Notes
105
Appendix IX: List of publications referred to in the Guide
120
Appendix X: List of relevant UK Accounting Standards
122
Appendix XI: Benefice (Parsonage) Houses and related information
124
Appendix XII: Valuation of property, FRS 11/15 Working Paper
126
Appendix XIII: Diary of updates
128
Abbreviations used in this Guide:
ASB
Accounting Standards Board
DBF
Diocesan Board of Finance
DFS Guide
Diocesan Annual Report and Financial Statements Guide
DFES
Department of Education and Skills
DSF
Diocesan Stipends Fund
DPA
Diocesan Pastoral Account
FRS
Financial Reporting Standard
PCC
Parochial Church Council
SORP 2005
Accounting and Reporting by Charities: Statement of Recommended Practice
(revised 2005)
SOFA
Statement of Financial Activities
SSAP
Statement of Standard Accounting Practice
UITF
Urgent Issues Task Force
Diocesan Annual Report and Financial Statements Guide - 2
Preface
Preface to the 3rd edition and online version – 25 August 2006
Diocesan Boards of Finance are amongst the most complex of charitable institutions, having to comply
with ecclesiastical law as well as the common law of trusts and secular legislation governing the
accountability of companies and charities. Trustee responsibilities under the Charities Act 1993 have
considerably increased in recent years as corporate governance concepts from the commercial world have
been overlaid on existing charity law duties to create new norms of best practice in charity administration.
Public expectations concerning charities’ ‘effectiveness’ challenge the sector to justify its place in modern
society in the wake of the Cabinet Office Strategy Unit’s ground-breaking recommendations for reform
(2002 Report: “Private Action, Public Benefit”). While these did not address the Church institutions in
particular, we are all being swept along by the tide of change in charity regulation brought by the
Charities Bill 2005, now on the last leg of its journey through Parliament with the prospect of enactment
later this year and implementation in 2007. The Bill’s proposed removal of the ancient legal presumption
of public benefit in charitable purposes for the advancement of religion, education or poverty relief
challenges the Church itself to re-examine its mission, its strategies and its “success criteria” in our
increasingly multi-cultural society. In common with membership organisations, and with the many
charities that now charge a fee for their services, as the first in line for ‘public benefit testing’ under the
new regime, we need to develop our annual reporting now to be able to meet this new challenge.
The Charity Commission’s benchmarking tool for Charity Review Visits, CC60: The Hallmarks of an
Effective Charity”, developed in recent years in response to these emerging issues for public confidence
in the sector, and freely available on their website for downloading and use by charities themselves, also
includes governance and performance among its six ‘hallmarks’ of best practice in charity administration.
DBFs are also among the top 5,000 registered charities required to file the statutory ‘Summary
Information Return’ (SIR) recommended by the Strategy Unit in 2002 as a new kind of simplified and
standardised dataset for free public access. Introduced for 2005 onwards as Part C of the annual return to
the Charity Commission, filed SIRs are now shown on special pages of their website. While the answers
to its eight key questions about the charity’s performance, plans, financial situation and governance are
unaudited, their correctness is the responsibility of the Board of Directors as a whole, which therefore has
to authorise the signing of the SIR in the same way as for the Annual Report and audited Accounts. On
top of all this, for 2006 onwards the DBFs will have to comply with the 2005 version of the Charities
SORP, the generally accepted code of best practice in annual financial reporting by charities, which has
now superseded SORP 2000.
As a help for DBFs in coping with all these changes, this Guide has been updated with a view to the
necessary convergence in financial reporting practices across the Church institutions, in line with current
developments in accounting and financial reporting standards elsewhere. Central to this is the single
composite specimen set of financial statements for a hypothetical DBF – similar to the approach used in
the HE/FE SORP for the universities/colleges sector.
As a further help for Diocesan Secretaries and financial management staff, the online version of this
Guide will be continually updated by the Diocesan Accounts Group to reflect new developments in
financial reporting practice and feedback from users of the Guide. To that end, an email alert system is
being set up for interested Diocesan staff to request news of each change to the Guide via the website.
Ashley W Ellis
Diocesan Secretary, Wakefield
Diocesan Annual Report and Financial Statements Guide - 3
Executive Summary
Introduction
The purpose of this executive summary is threefold:
 To introduce the Guide for those who will use it (such as treasurers, members of finance and audit
committees, diocesan secretaries and financial staff);
 To flag the key principles and significant changes from the previous edition (the second); and
 To give an overview for trustees to help them to understand and discharge their legal responsibilities
to the Diocesan Board of Finance (DBF) and inform prospective and incoming trustees.
This is the third edition of the Guide. It has been updated by a small group with representation from
diocesan and national church staff together with professional advisers, reporting to the Diocesan
Secretaries Liaison Group. The principal aim is to interpret the application to DBFs of the financial
reporting guidance, ‘Accounting and Reporting by Charities: Statement of Recommended Practice’
(SORP 2005), which was published by the Charity Commission in March 2005.
Context and drivers for change
The responsibilities of charity trustees are considerable.
The Charities Bill is passing through Parliament as at 25 August 2006. The Bill proposes the removal of
the legal presumption of public benefit in charitable purposes for the advancement of religion and
education and the relief of poverty. Public debate has centred on the implications for charities which
charge high fees for their services such as schools. However, there could well be issues for others such as
membership bodies generally and the Church of England specifically. The public benefit of a DBF needs
to be explicit in its mission, its work and its financial reporting.
We live in a time of rising public expectations of charity in terms of probity, transparency and
accountability. The Charity Commission has recently re-published its guidance on trustees’
responsibilities, The Essential Trustee – What you need to know, publication CC3, which is available
from their web-site http://www.charitycommission.gov.uk/publications/ccpubs3.asp.
In response to public interest, the Charity Commission has introduced a new document, the Summary
Information Return (SIR), for larger charities which will include DBFs. The SIR is on the public record
and asks questions about an organisation’s objectives, achievements and plans for the future.
SORP 2005
SORP 2005 provides guidance on the application of accounting standards to charities to aid those who are
responsible for preparing the Trustees’ Annual Report and the financial statements.
The preparation of the financial statements alone does not discharge the trustees’ duty of public
accountability. The financial statements are based on the monetary values of incoming resources,
resources expended, assets, liabilities and funds (monies not yet spent). Hence the role of the Trustees’
Annual Report which is in word form and enables the trustees to explain how the organisation is
structured and the work it does.
The principal changes in SORP 2005 are:
Diocesan Annual Report and Financial Statements Guide - 4
 A more structured Trustees’ Annual Report with emphasis on:




Structure, governance and management;
Objectives set and the activities carried out to deliver these;
Achievements and performance, both quantitative and qualitative;
Plans for future periods, which will link the Trustees’ Annual Report for one year to that for the
next;
 A focus on resources expended by activity in the financial statements to provide a link to the Trustees’
Annual Report.
Care should be taken to ensure that information in the Trustees' Annual Report and financial statements is
consistent with other published information, including the SIR. Wherever possible, information should
be given in context to aid understanding.
Application
As before, the Guide is laid out by chapter to address the accounting and financial reporting issues facing
DBFs. It also addresses the above drivers for change where practicable. In response to feedback from
users, it includes for the first time a model Trustees’ Annual Report, financial statements and Summary
Information Return for the fictional Diocese of Mercia.
The model documents will facilitate compliance with best practice and regulation, bring consistency of
financial reporting across the dioceses, aid national church staff in their work and save time and effort in
busy diocesan offices.
Key changes
 The new format of the Trustees’ Annual Report is covered in section 2 with the model report and SIR
at Appendices V and VI respectively;
 Six possible models of governance are set out in paragraph 2.1 to assist in explaining governance
arrangements in the Trustees’ Annual Report;
 Paragraph 2.4 provides a checklist of the form and content of the Trustees’ Annual Report;
 The new format financial statements are covered in section 3 with the model at Appendix VIII;
 Paragraph 4.14 deals with DBF involvement in building projects entered into by the governing bodies
of voluntary-aided church schools. The Guide notes that the role of the DBF in such transactions is as
agent, making short-term loans to the governing body concerned pending receipt of funds from the
Department of Education and Skills (DFES). The accounting follows accordingly.
 Section 6 deals with accounting for properties. Paragraphs 6.6 to 6.8 give clearer guidance on the
recognition of benefice houses as functional fixed assets within the benefice houses fund, (generally
an endowment fund).
 Section 7 deals with accounts governed by Measure. Paragraphs 7.1 and 7.2 deal with the Diocesan
Pastoral Account (DPA), noting that whilst this account is restricted by Measure, there could be
circumstances where DPA funds could be moved to unrestricted funds.
 Section 12 gives guidance on implementing the Guide.
Future developments
The Guide is available on-line. It will be updated for new developments and in the light of practical
experience and feedback from users. An email alert system is being set up for interested Diocesan staff to
request news of each change to the Guide via the website.
Diocesan Annual Report and Financial Statements Guide - 5
1.
Scope and Aims
Scope
1.1.
The Diocesan Annual Report and Financial Statements Guide (DFS Guide) is a comprehensive
reference document for the production of the diocesan annual report and financial statements. It is
cross referenced where appropriate to the Charities SORP (Accounting and Reporting by
Charities: Statement of Recommended Practice) 2005, and to the relevant Financial Reporting
Standards (FRSs), Statements of Standard Accounting Practice (SSAPs) and Urgent Issues Task
Force Abstracts (UITFs), and to the Companies Act 1985. The Guide is intended to supplement
those documents, not to replace them. Neither the Guide nor the SORP deal with the preparation
of internal management accounts (but see 1.3).
1.2
The DFS Guide addresses the particular reporting issues arising for diocesan finances but cannot
cover every conceivable unusual transaction. The contents of the Guide are directed, in the first
instance, to the activities of Diocesan Boards of Finance (the financial executives in the majority
of dioceses). But the principles underlying each section of the Guide are equally applicable to
other diocesan bodies, if these are separately accountable charities in their own right, i.e. some
Diocesan Boards of Education, certain Diocesan Conference/Retreat Houses, or perhaps a
Diocesan Trust or Property Company publishing its own statutory annual report and accounts.
1.3
A number of topics are covered which could be seen as strictly internal management issues, e.g.
Risk Assessment and Management, Objectives, Strategy and Governance, plus the implications of
the Trustee Act 2000. Such topics are included because the regulatory framework within which
dioceses have to operate requires reference to these topics in the trustees’ annual report.
1.4
This revision of the DFS Guide has been produced by a sub-group of the Diocesan Accounts
Group but will be maintained in the future by the Diocesan Accounts Group itself reporting to the
Diocesan Secretaries Liaison Group. The sub- group comprises representation from diocesan and
national church staff and external professional advisers (see Appendix 1 for membership).
1.5
The Diocesan Accounts Group will update the DFS Guide online as and when accounting
practices and regulatory requirements evolve and in the light of experience and comments from
dioceses. The Guide includes a comprehensive illustrative set of diocesan financial statements
and annual report, which should be regarded as the height of best practice and a template for
convergence by dioceses towards greater comparability in line with current developments in the
world of financial reporting generally. It also includes a related “Summary Information Return”
and illustrative summary financial statements. It should be noted although that ultimate
responsibility for the diocesan annual report and financial statements must remain with individual
Diocesan Boards of Finance (DBFs) and their independent professional auditors in each case.
Email alerts will be available for Diocesan Secretaries and interested colleagues as and when the
group makes any changes to the Guide in its online version, which will be maintained on the
website in parallel with the PCC Guidance there.
Aims
1.6
The aims of the DFS Guide are:
a) to assemble in one document agreed guidelines on appropriate best practice;
Diocesan Annual Report and Financial Statements Guide - 6
b) to improve the understanding of diocesan financial statements both inside and outside the
church and facilitate greater comparability of the financial activities and position of individual
dioceses;
c) to provide a resource document for those coming new to the post of diocesan finance
director/accountant, etc., stating the arguments and reasons which take the group from the
SORP, the standards and financial reporting legislation to the advice given in the Guide;
d) to facilitate discussion and agreement with auditors and to reduce reliance on individual
dioceses and their auditors for accounting research;
e) to be of assistance with the preparation of the annual report and financial statements for the
year 2006 and thereafter.
Guiding principles
1.7
Given the range of financial transactions covered by dioceses it is assumed the diocesan annual
report and financial statements will be prepared with the following in mind:
The reporting body - This is taken to be the Diocesan Board of Finance, which should be a
company limited by guarantee in accordance with the Diocesan Boards of Finance Measure
1925. Where a single annual report is attempting to convey wider diocesan activity,
additional considerations arise and each diocese will have to take account of its own
organisational structure (see also section 1.2). The first stage in disseminating the report is the
formal adoption by the Board which may also have membership co-terminous with the
Bishop’s Council or Diocesan Synod depending on the organisation of the diocese.

Clarity - Subject to legal requirements, financial statements must be produced with as much
clarity as possible. Diocesan financial statements are complex and the aim of keeping the
overall position clear and simple may necessitate cross referencing to more detailed notes.

Accounting policies - FRS18 sets out the principles to be followed in selecting accounting
policies which enable financial statements to give a true and fair view. Financial statements
should be prepared on the following basis:

going concern

accruals (except for cash flow information)
The appropriateness of accounting policies should be judged against the following objectives:

Relevance: financial information is relevant if it has the ability to influence the economic
decisions of users and is provided in time to influence those decisions.

Reliability: financial information should be presented in a way that reflects the substance
of transactions and other events, is free from bias and material error, and has been
prudently prepared wherever doubts exist. However, this should not result in making
excessive provisions, understating assets or overstating liabilities as this would mean that
the information was not neutral and therefore not reliable.

Comparability: the usefulness of financial information is improved if it can be compared
with previous accounting periods or with information from other dioceses. This can be
achieved only through internal consistency of information and adequate disclosure.
Diocesan Annual Report and Financial Statements Guide - 7
 Understandability: financial information should be capable of being understood by users
having a reasonable knowledge of the diocese's business and activities - (SORP 2005
Appendix 2).

Consolidation - All financial transactions should be brought together in one set of statements
so that the overall picture as well as the split between the parent charity and all subsidiary
undertakings are clear. Although the monitoring section (Part B) of the Charity
Commission’s Annual Return is based on the results of the parent charity, the public domain
section (Part C: Summary Information Return) is intended to cover the consolidated group.

Disclosure - Accounting policies should be transparent. Assets, liabilities, income and
expenditure should not be hidden. Non-disclosure could result in a qualified audit opinion
and a lack of comparability with other dioceses.

Materiality - This is to be judged by the nature of the item (e.g. trustee transactions;
auditors’ remuneration) and by its context (e.g. an institutional grant in relation to all grantmaking and to all charitable activity costs). Details of immaterial transactions should be
eliminated. State all figures in £'000 where appropriate.
Diocesan Annual Report and Financial Statements Guide - 8
2.
Trustees’ Annual Report
The Trustees’ Annual Report is an important document. Although separate from the financial statements,
the two documents are normally bound together with the auditor’s report for publication. SORP 2005
seeks to strengthen the linkage between the Trustees’ Annual Report and the financial statements.
The Trustees' Annual Report should:
"…explain what the charity is trying to do and how it is going about it. It will assist the user of accounts
in addressing the progress made by the charity against its objectives for the year and understanding its
plans for the future. Good reporting will also explain the charity's governance and management
structure and enable the reader to understand how the numerical part of the accounts relates to the
organisational structure and activities of the charity", paragraph 36, SORP 2005.
Introduction
The term “charity trustees” has the meaning set out in section 97 (1) of the Charities Act 1993; that is “the
persons having the general control and management of the administration of the charity irrespective of
what they are called”. In the case of a charitable company it is the directors who are the charity trustees –
(SORP 2005 Appendix 1).
This Guide views the Diocesan Board of Finance (DBF) as the financial executive body of the diocese,
while in secular, legal terms the DBF is the charitable company created by Synod for the proper
administration of its financial resources. Accordingly, the Trustees’ Annual Report should deal with this
function and in particular the extent to which the diocese’s activities are sustainable in financial terms.
For context and completeness, reference could be made to the wider work of the diocese and directions to
sources of further information. Where non-financial information is given in the Trustees' Annual Report,
care should be taken to ensure that it is accurate, in context and consistent with information published
elsewhere within the diocese.
This chapter is set out as follows:
2.1
2.2
2.3
2.4
Who are the trustees – what are the different diocesan structures?
Guidance on matters to include in the Trustees' Annual Report
Examples of qualitative and quantitative information
A checklist of the form and content of the Trustees’ Annual Report
Annexe A – more detailed guidance on key areas:





Reserves policies – explain and justify
Related party transactions
Investment policies and the Trustee Act 2000
Risk assessment and management strategy
Grant making policies
Annexe B - Other useful information
Diocesan Annual Report and Financial Statements Guide - 9
2.1
Who are the trustees – what are the different diocesan structures?
There are a number of different ways in which the trustees of a DBF may be constituted. Each DBF
is usually a company limited by guarantee constituted under the Diocesan Boards of Finance Act
1925. The members of the company are the individuals who have signed guarantees to contribute
sums of money (often between £1 and £20) in the event of the company being wound up. The
memorandum and articles of association of the DBF comprise the constitution and will set out in
detail how the company is to be administered including how the directors reach their position. The
directors are the trustees for the purposes of charity law.
The members of the DBF may be made up from certain office holders (e.g. the Bishop), members
of the Bishop’s Council, Members of the Diocesan Synod or co-opted lay members. The directors
of the DBF may then be the same as the members or may be individuals who are:
 on the Board ex officio, such as the Bishop;
 elected by various groups depending on the provisions of the constitution (memorandum and
articles of association);
 co-opted either by the trustees as a body or by a third party such as Bishop’s Council;
 nominated by a third party, such as the Bishop.
Terms of service can vary depending on the constitution. For instances, elections and nominations
may be for a three-year term with one third retiring each year. This provides a balance of
experience (two thirds of the trustee complement) and new blood (one third).
Examples of different models are set out below. The directors of the company are the trustees of
the assets for the purpose of charity law and are responsible for the charitable application of those
assets. Whatever the structure, it is essential that the lines of responsibility are clear as to who has
the final authority over the running of the DBF. This needs to be clearly set out in the Trustees'
Annual Report along the following lines:
Diocesan governance
The governing body of the Diocese is Diocesan Synod, which is an elected body with
representation from all parts of the Diocese. It is governed by Standing Orders approved on xx
xxxx 19xx and subsequent amendments. Membership consists of ex officio members, including the
Bishops and Archdeacons, clergy members elected by the house of clergy in Deanery Synods, lay
persons elected by the house of laity in Deanery Synods, up to five persons who may be co-opted by
the house of clergy or the house of laity and a maximum of ten members nominated by the
Diocesan Bishop. The Diocesan Synod normally meets three times a year. Many of Diocesan
Synod’s responsibilities have been delegated to the Standing Committee and to Bishop’s Council.
An example of such an arrangement is given in Appendix V which broadly follows Model 1.
Models of governance
The following table sets out six models:
Diocesan Annual Report and Financial Statements Guide - 10
Trustees – for charity law purposes
Membership of the
Company (for
company law
purposes)
Model 1
Bishop as President,
ex officio
Members of
Diocesan Synod
Co-opted members
such that lay
members form a
majority
Directors – for company law purposes
Who has the power of appointment?
Sub-Committees
Members of Bishop’s Council:
Audit Committee
Ex officio: Bishop, Dean, Archdeacons,
Chair of House of Clergy of Diocesan Synod,
Chair of House of Laity of Diocesan Synod,
Chair of the Diocesan Board of Education,
nominated member of the Houses Committee
Finance Committee
Glebe Committee
Houses Committee
Elected:
Five members elected by the House of
Clergy
Comments
The membership may be between 100 and 200
people.
Bishop’s Council may be some 25 people and
so there are some 25 trustees. This is a
reasonable number for a body as complex as a
DBF and should give adequate trustee resource
in terms of head count. Given the election
process, there should be good representation of
trustees across the diocese.
Most DBFs have now separated the
responsibilities of the Audit and Finance
Committees.
Five members elected by the House of Laity
Co-opted:
Up to two members by Bishop’s Council
Nominated:
Up to two members nominated by the Bishop
Model 2
Members of Bishop’s Members of Bishop’s Council
Council
Finance and
Central Services
Committee
This model has a much smaller body of
members who also make up the trustee body.
It is unusual to operate through only one
Committee.
Diocesan Annual Report and Financial Statements Guide - 11
Model 3
Members of
Diocesan Synod
Ex officio: Bishop, Archdeacons
Audit
Elected:
Finance and
General Purposes
One clerical member from each of the twenty
deaneries One lay member from each of the
twenty deaneries
Co-opted:
Houses and Glebe
Investments
This is a large trustee body, over 60 in all.
Like model 1, there is an emphasis on
elections. Here the Bishop is able to nominate
10 trustees.
A Nominations Committee is unusual but good
practice.
Nominations
Up to ten members co-opted by the trustees
Nominated:
Up to ten members nominated by the Bishop
Model 4
Members of
Diocesan Synod
Finance Committee made up of:
Audit Committee
Ex officio: Bishop, Archdeacons
Houses Committee
Elected:
Property and
Investments
Five members elected by the House of
Clergy
Remuneration
The trustee body describes itself as a Finance
Committee in the sense of being the finance
executive of the diocese. This can be
confusing because other dioceses have Finance
Committees which are Sub-Committees of the
full trustee body.
Co-opted:
This model has one of the smaller number of
trustees at only 14, 2 of whom may be coopted by the other trustees.
Up to two members by the Finance
Committee
A Remuneration Committee is unusual
although common in the private sector.
Five members elected by the House of Laity
Diocesan Annual Report and Financial Statements Guide - 12
Model 5
Members of
Diocesan Synod
Members of Diocesan Synod Standing
Committee made up of:
Asset Investment
Committee
Ex officio: Bishop, Archdeacons, Chair of
House of Clergy of Diocesan Synod, Chair of
House of Laity of Diocesan Synod
Elected:
Audit Committee
This model also has a smaller trustee body,
some 18 in all. Compared with model 4, there
are more ex officio and nominated trustees.
Parsonages and
Property
Committee
Five members elected by the House of
Clergy
Five members elected by the House of Laity
Nominated:
Up to two members nominated by the Bishop
Model 6
Members of
Diocesan Synod
An Executive Committee:
Audit
Ex officio: Bishop, Archdeacons
Finance and
General Purposes
Elected:
Four members each from the two
archdeaconries
This Executive Committee is the trustee body
as is the Finance Committee in model 4. There
are no co-options in this model.
Houses and Glebe
Investments
Nominated:
Two members appointed by the Bishop
Diocesan Annual Report and Financial Statements Guide - 13
There is no right or wrong model of governance. Each diocese must discern the model which is
right for its current and likely future needs. Generally, the membership is made up of the members
of Diocesan Synod, typically 100-200 people. This makes sense as Diocesan Synod is the statutory
governing body of the diocese. There is more variation in the trustee body, ranging from a large
body (some 60) in model 3 through Bishop’s Council (some 25 in model 2) to smaller bodies in
models 4, 5 and 6. In model 3, there is no distinction between the member and trustee bodies. This
distinction can be helpful as the two bodies have quite different roles. In all the models, there is an
emphasis on elections which helps to gain representation across the diocese. The power of the
Bishop to nominate trustees is generally 2 although 10 in model 3. Only models 3 (10 members)
and 4 (2 members) give trustees the power to co-opt.
In the broader charity world, there is a trend towards smaller trustee bodies, say 10-15 members,
with individuals chosen for the knowledge, skills and experience they bring in the context of the
organisation’s needs. This is an issue for organisations which traditionally have followed a model
based on election and nomination. How does such an organisation get the breadth and depth of
trustee resource it needs? Do individuals appreciate that, if elected, they are not representatives of
those who elected them but charity trustees charged with acting only in the best interests of the
DBF and its beneficiaries? How can the size of the trustee body be limited so that decisions may
be made swiftly and change embraced?
These are challenging questions not only for DBFs but for other charities with regional
representation and larger trustee bodies such as professional institutes. A possible solution is to
delegate trustee responsibilities to a smaller body as in models 4, 5 and 6. The company members,
say Diocesan Synod, would retain their powers and responsibilities for fundamental matters
affecting the Church of England in their dioceses – including the power of appointment of trustees but would be freed from charity trustee responsibilities, which can be onerous. A smaller trustee
body should be better able to speed up decision-making, which may be helpful as dioceses seek to
strengthen their financial sustainability and respond quickly to areas of opportunity or concern.
2. 2
Guidance on topics to include in the Trustees' Annual Report
Under SORP 2005, a Trustees’ Annual Report must be prepared and should contain the
information in sections 2.2.1 to 2.2.8 below:
2.2.1
Reference and administrative details of the charity, its trustees and advisers
2.2.2
Structure, governance and management
2.2.3
Objectives and activities
2.2.4
Achievements and performance
2.2.5
Financial review
2.2.6
Plans for future periods
2.2.7
Funds held as custodian trustees on behalf of others
2.2.8
Additional information which would be included within the Directors' Annual Report
if that were a separate report
The Trustees' Annual Report should be signed and dated on behalf of the trustees, typically by the
chair of trustees.
Diocesan Annual Report and Financial Statements Guide - 14
Each of these captions will now be covered in more detail. The changes from SORP 2000 are
significant. There is greater emphasis on how the trustees are recruited and inducted, also how they
are organised (e.g. committee structures) for effective governance, and which of their tasks they
delegate to management. There is the need for a link between the activities described here with
those in the financial statements. Information is required on matters such as achievements and
performance which may not have been disclosed in the public domain before. Plans for future
periods need to be explained. How much detail should be given to aid the reader without creating a
hostage to fortune? Is it best to disclose less in the year of implementation and perhaps more in the
second year?
2.2.1 Reference and administrative details of the charity, its trustees and advisers, (SORP
2005 paragraph 41)
This should include:
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The name of the charity and/or charitable company plus their charity and company registration
numbers
Nature of the governing document ( Trust Deed, Memorandum and Articles of Association)
How the charity is constituted (unincorporated association, limited company);
Registered office and principal officers
Bankers
Auditors
Insurers
Legal advisers
Investment advisers (state CCLA if it is the only investment adviser used)
Other professional advisers, e.g. surveyors, valuers, structural engineers etc
Trustees/Directors at the date the report is approved; noting any changes during the accounting
period and an explanation of the method(s) of their election/appointment.
Names of Chief Executive Officer or equivalent (e.g. Diocesan Secretary) and any other senior
staff members to whom day to day management is delegated by the trustees.
2.2.2 Structure, governance and management
This should provide the reader with an understanding of how the charity is constituted, its
organisational structure and how its trustees are appointed and trained to understand better how the
charity’s decision making process operates (SORP 2005 paragraph 44).
In the Church of England there are a number of decision making bodies and individuals that can
have an influence on Church finance e.g. the Church Commissioners, Archbishops’ Council,
Diocesan Synods, Bishops, Bishop’s Council, Deanery Synods, Boards of Education, PCCs.
The Diocesan Board of Finance as a limited company will have a company membership, and a
board of directors, in some cases co-terminous, and which may to some extent overlap with the
membership of other church structures. There may also be a separate finance committee and an
audit committee, to name just two.
In order to meet the SORP requirement it will be necessary to describe as briefly as possible the
DBF’s relationship with the various Church, company or other bodies, explaining:

The individual bodies’ function within the Church of England as a whole and the diocese in
particular;
Diocesan Annual Report and Financial Statements Guide - 15
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Whether or to what extent the individual bodies’ financial transactions are included in the
Diocesan Board of Finance financial statements;
Any relationship with other bodies, and influences on the decision making process.
It may be helpful to provide the information in the form of a flow chart or graphic presentation in
addition to providing some explanation of key diocesan employees and the location and functions
of the diocesan office(s). A summary of the role and remit of each body is given in Appendix IV.
In so far as the DBF is clearly part of the wider network of Church organisations, the relationship
involved and its impact on the DBF needs to be explained. A brief account as to how the Church of
England is structured in this context is given in Appendix V. This should be included here or
included in an introduction to the report. This section should also help a reader to understand the
nature and relationship of all key related parties.
Within this section there should also be a statement confirming that the major risks to which the
DBF is exposed, as identified by the trustees, have been reviewed and that systems or procedures
have been established to manage those risks. Care is needed to avoid implying that there are no
undiscovered major risks or that their management provides complete assurance that nothing can
go wrong.
See Annexe A for further guidance in this area.
2.2.3 Objectives and Activities (SORP 2005 paragraph 47)
This section will include a logical progression from:
 The objects of the DBF (e.g. ‘to promote the work of the Church of England in the Diocese
of….. and to act as a good steward of the resources entrusted to it.’)
 The DBF’s aims and the difference it seeks to make through its activities (e.g. a more effective,
efficient and economical use of the resources of the Diocese), to
 An explanation of the main objectives the DBF had set for the reporting year (those disclosed
for future years (see “Future Plans”) will need to be consistent for reporting purposes), to
 An explanation of the strategies adopted for achieving these stated objectives, to
 Details of significant activities (including programmes, projects, and services) that have
contributed to the (full/partial) achievement of those stated objectives.
These significant activities will in turn be the activities by which the Board will report its income
and expenditure in the SOFA and supporting notes to the financial statements. Note that the
activities will relate to those of the DBF as financial executive body and not to those of the diocese
as a whole. Reference can be given here as to where information on the diocese as a whole may be
found.
Achievements and performance
The report should contain information that enables the reader to understand and assess the
achievements of the DBF and (separately) its subsidiary undertakings in the year. It should include
a review of performance against objectives set (SORP 2005 paragraph 53).
This will include any qualitative and/or quantitative information used in order to assess the
Diocesan Annual Report and Financial Statements Guide - 16
‘outcome’ of DBF activities (e.g. financial efficiency gains, results of training given in
financial/management skills, etc.). This section will also include a review of income generating
activities and the performance of investments against any objectives set or benchmarks used.
Examples of qualitative and quantitative information which may be included
The level of detail given should be proportionate to the DBF’s role as the financial executive body
of the diocese and may include:
 Initiatives at diocesan level, such as the number of lay people and clergy on courses and in
training
 Numbers of lay readers licensed, clergy ordained and candidates for ordination nominated by
the diocese;
 Church attendances; whilst not directly the responsibility of the DBF, attendances are an
indicator of the health of the diocese and its commitment to outreach. Some dioceses choose to
attach an (unaudited) schedule to their financial statements giving financial information on
archdeaneries, deaneries or parishes such as parish share paid
 Recovery rate of the parish share
 Schools, in terms of numbers and projects sponsored
Much of the work of any DBF continues year on year so it may be helpful to note any trends which
are developing and to put information in context for the reader.
The most important information is the financial sustainability of the diocese especially in terms of
unrestricted incoming resources exceeding resources expended. This should be addressed
specifically depending on the financial position of the diocese in question.
2.2.4 Financial review
The report should contain a review of the financial position of the charity and its subsidiaries and a
statement of the principal financial management policies adopted in the year (SORP 2005 para 55).
This includes the reserves policy, investment policy and a review of principal funding sources.
2.2.5 Plans for future periods
The report should explain the charity’s plans for the future including the key aims and objectives it
has set for future periods together with details of any activities planned to achieve them.(SORP
2005 para 57).
2.2.6 Funds held as custodian trustee on behalf of others
Where the DBF is acting as a custodian trustee, the following matters should be disclosed in the
report: (SORP para 59)
a) A description of the assets
b) The name and objects of the charity (or charities) on whose behalf the assets are held
c) Details for arrangements for safe custody and segregation of such assets from the DBF’s own
assets.
In practice this will be mainly investments and deeds of properties held for PCCs.
Diocesan Annual Report and Financial Statements Guide - 17
2.2.7 Directors’ Annual Report
Strictly, directors of charitable companies have to prepare both a directors’ annual report under the
Companies Act 1985 and a trustees’ annual report under the Charities as Act 1993. However, the
Charity Commission is prepared to accept a single directors’/trustees’ report for filing provided the
relevant information required in the trustees’ annual report is contained in the single document –
(SORP paragraph 420). But whatever format is chosen, two separate reports or one composite
document, care must be taken to ensure that all legal requirements are met. If the trustees’ report
and directors’ report are combined the heading or else the opening paragraph of the report needs to
be changed to indicate it is a combined report and the directors/trustees are one and the same.
A directors’ report must include the following, in addition to items already mentioned under
trustees’ report:
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A statement of the directors’ responsibilities and of their company membership interests;
Reference to taxation;
Reference to the appointment of auditors;
Reference to the issue of corporate governance (generally this would be covered
comprehensively by complying with the SORP) but for ultimate best practice could usefully
also confirm compliance with the principles and relevant detailed provisions of the “Combined
Code on Corporate Governance” (June 2006, the Financial Reporting Council).
2.3 Summary information return (SIR)
This is now an additional part of the Annual Return process for charities with income in excess of
£1m.
An example of a blank SIR can be viewed on the Charity Commission Website, by selecting
“meeting our requirements” on the menu at the top of the home page. Once on this page, select the
heading that refers to the SIR and Guidance notes.
The SIR contains 8 key questions about the charity, some of which will be extracted from the
financial statements. There is a certain amount of overlap between the requirements of the SORP
2005 compliant Trustees Report and the information required on the SIR. Some of the questions are
quite open – such as Q6 “How would you describe your charity’s financial health at the end of the
period?”, but the guidance notes gives the kind of information that is being sought.
The Charity Commission posts this document along with all other SIRs alphabetically in a separate
section cross-linked to the relevant charity’s registry entry and financial statements for public
viewing on their website, under its “Register of Charities” section. DBFs should ensure that the
information in the SIR as a statutory document is accurate, fair, consistent and complete.
A model SIR for MDBF is attached as Appendix VI.
GuideStar UK
GuideStar UK is a database of existing information which is already in the public domain. The
main source of information is the Charity Commission. Guidestar UK extracts key financial and
narrative data from the Trustees' Annual Reports and financial statements. Charities are able to
edit and add to their entries on-line. Charities are also able to upload their latest newsletters and
press releases as well as other important documents such as annual reviews or impact reports.
The aim of GuideStar UK is to help the general public to find out:
Diocesan Annual Report and Financial Statements Guide - 18
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How to contact the charity
What the charity has been legally set up to achieve
Who the charity helps
The services the charity provides
Where the charity works
The charity's activities and recent achievements
How the charity spends its money
Grants the charity has made
The charity's grant making policies and programmes
The charity's fundraising and other income generating activities
The origins and history of the charity
The number of people who work and volunteer for the charity
The roles performed by volunteers
The names of the people responsible for decision making at the charity
How the charity makes sure it is well managed
What assets the charity holds
How the viewer can help the charity
DBFs are encouraged in their own and the public interest to monitor the information about them on
the GuideStar UK website to check that it is accurate, fair, consistent and complete.
Other useful information
A note of other useful information is attached as Annexe B at the end of this chapter.
2.4 Checklist of the form and content of the Trustees’ Annual Report
The report should include the following:
A. Reference and administrative details
1 Registered name and any other working name
2 Charity and Company (if applicable) registration number
3 Address of Principal Office / Registered office if company
4 Names of all trustees serving at any time between the
beginning of the financial year in question and the
date when the Report is approved
5 Name of Chief Executive (or similar)
6 Names and addresses of other relevant organisations
(e.g. bankers, solicitors, auditors, fund managers)
Diocesan Annual Report and Financial Statements Guide - 19
B. Structure, governance and management
1 Nature of governing document and how charity is constituted
(e.g. trust, company etc) and its date (or when last amended)
2 Method for recruitment and appointment of trustees
(including who has power to appoint trustees)
3 Policies and procedures for induction and training of trustees
4 Organisational structure / decision making process
5 Relationship with any wider network and impact on policies (if applicable)
6 Relationships with related parties, subsidiaries, other charities with which
it co- operates
7 Statement confirming risks have been identified, reviewed and steps taken
to manage those risks
C. Objectives and activities
To help reader understand aims and objectives of the charity, how they relate to longer term
strategies
1 Summary of objects per governing document
2 Explanation of aims, setting out difference it intends to make
3 Explanation of main objectives for the
year
4 Explanation of strategies for achieving objectives
5 Details of significant activities that contribute to achievement of objectives
These should focus on significant activities identified in the SOFA
6 Grant making policy (where material)
7 Policy regarding "programme related investments" where applicable
i.e. where investment is to promote objects, rather than a financial return
8 Contribution of volunteers to charitable or fund raising
activities
Note the progression from 1 through 2, through 3 through 4 to 5 that in turn ties in with the
presentation of the key activities in your SOFA.
Diocesan Annual Report and Financial Statements Guide - 20
D. Achievements and performance
To give reader an understanding of achievements of charity and performance against objectives
set. Include quantitative and qualitative information
1 Review of activities explaining performance against objectives set.
Include a summary of measures or indicators used to assess achievement
2 Performance of fundraising against objectives set
3 Performance of investments against objectives set
4 Comment on factors within and outside charity's control that are relevant
to achievement of objectives
This involves looking at the objectives set out in C above and reporting on how these helped to
achieve the objectives of the DBF.
E. Financial review
Give a review of financial position of charity ( and subsidiaries) and a statements of principal
financial management policies, including:
1 Policy on reserves - stating level and why they are held
2 State purpose of designations for future expenditure and likely timing of
that expenditure
3 For any funds materially in deficit - comment on why and steps being
taken to eliminate deficit
4 Principal funding sources
5 How has expenditure supported key objectives of charity
6 Investment policy (where applicable) and extent to which social,
environmental or ethical considerations are taken into account (if any)
F. Plans for future periods
1 Explain the charity's plans for the future, including aims and key
objectives it has set and the activities planned to achieve them
Diocesan Annual Report and Financial Statements Guide - 21
G. Funds held on behalf of others
Where charity is a custodian trustee, the following should be disclosed:
1 Description of assets held in this capacity
2 Name and objects of charity (ies) whose assets are held and how this
activity falls within their own objects
3 Details for safe custody and segregation of those assets
Note
Custodian trust assets should go here – with a reminder to include deeds (just the number as
these cannot be readily valued) as well as investments.
In addition, the other Directors’ report disclosures should be given, such as the Statement of
Trustees’ Responsibilities and the arrangements for the reappointment of auditors.
Diocesan Annual Report and Financial Statements Guide - 22
Annexe A
Reserves policy, related party transactions, investment policy, risk and grant making
1.
Reserves policy (“Explain and justify”)
The SORP uses the term free reserves to describe that part of a charity’s income funds that is freely
available for its general purposes, and not yet spent, committed or designated.
This definition of reserves therefore excludes permanent endowment, expendable endowment,
restricted funds, designated funds; and income funds that could only be realised by disposing of
fixed assets held for charity use.
To justify their holdings of reserves, trustees should have a reserves policy based on a realistic
assessment of their reserves needs, free and restricted - (Charity Commission publication CC19
paragraph 40). It is likely the DBF’s risk management review will be used as part of the process in
arriving at this assessment.
As a minimum a reserves policy should cover:
 The reasons why the charity needs reserves;
 What level (or range) of reserves the trustees believe the charity needs after analysing existing
balances honestly and openly;
 What steps the charity is going to take to establish or maintain reserves at the agreed level (or
range) – spending excess or creating extra reserves; and
 Arrangements for monitoring and reviewing the policy (Charity Commission publication 19
paragraph 43)
The reserves policy should then be explained in the annual report, stating the level of reserves held
and why they are held.
Examples:
2.
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A DBF has identified in its risk management review that it is heavily reliant on parish share
contributions and suspects that parishes may find paying difficult. The DBF adopts a reserve
policy of holding a proportion of the total parish share in reserve to enable an orderly
adjustment of activity if parishes default.
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A DBF has noted that two thirds of its income is from parish share and the rest from
investment income and other sources. In the early months of recent years receipt of parish
share has fallen up to three months in arrears overall. For that reason, the DBF decides to
hold two months expenditure in reserve for cash flow reasons.
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The risk management review has identified that a significant part of the diocese’s work is
project based and is therefore prone to peaks of expenditure at short notice. The DBF is not
organised so that additional funds can be raised at short notice. The DBF holds a sum in
reserve to cover any immediate calls for additional expenditure.
Related party transactions
In preparing the trustees’ report and the Statement of Financial Activities, it needs to be
remembered that information is required on related party transactions. FRS 8 covering related
parties was issued in October 1995 shortly after the issue of the first DFS Guide. The SORP
Diocesan Annual Report and Financial Statements Guide - 23
considerably expands on this topic, and the matter is receiving continuing focus from the Charity
Commission - (SORP paras 221 – 229).
Background - FRS 8 requires information on related party transactions, but the key issue is to be
clear on which types of transactions and which types of relationships require disclosure.
The only excluded transactions are:
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Intra group transactions eliminated on consolidation;
The SORP’s special exemptions for charity law compliant related party transactions;
Immaterial transactions (but materiality in this case extends to considering effect on related
party.
Related parties are: (examples related to diocesan financial statements given in italics)
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Where one party is controlled by another or the two are under common control (relationship of
Diocesan Synod to DBF or DBE);
Where one party has significant influence over another - possibly as a subordinated interest
(non-charitable Property company as subsidiary of DBF);
Other group entities, associates and joint ventures (Local Authorities, Mothers’ Union, Church
Urban Fund or similar bodies working in partnership with a diocesan board/committee);
Directors and key management of the reporting entity (Clerical chairman of Property
Committee occupying parsonage house);
A non-charitable entity managed by the reporting entity under a management contract
(Parochial CUF project managed by a DBF);
Members of the close family of the individuals above (PCC member related to DBF
Chairman);
Non-charitable entities in which any of the above have a controlling interest.
Paragraphs 221 to 229 of SORP 2005 amplify FRS 8 and what is required by way of disclosure.
This includes, the names of transacting parties, a description of the relationship of the parties, a
description of the transaction, the amounts involved, the outstanding balances at the balance sheet
date, any amounts written off in the accounting year and any other elements necessary to
understand the transaction.
Excluded transactions are:
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Intra group transactions
Pension fund payments
Normal commercial transactions
Certain transactions exempted by the SORP if they do not influence the separate independent
interests of the charity, e.g. donations unlikely to change the way the DBF operates, minor
services, “normal” employment contracts other than with trustees, staff pension contributions,
minor sales, normal beneficiary services, trustee-expense reimbursement.
Related parties are set out in the Glossary of the SORP, GL 50. The definition does not reduce the
FRS 8 list but adds:
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Custodian trustees (DBFs are required by Measure to be custodian trustee in relation to PCC
property, which should be disclosed by way of note, but DBFs have no control over PCCs,
which are separate legal entities);
Diocesan Annual Report and Financial Statements Guide - 24
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Any person/body who can appoint/remove a significant proportion of trustees or who seconds
the services of a trustee;
Any officer, agent or employee with power to direct or control major activities or resources
(Diocesan Secretary).
Persons connected with a related party, broadly including family members, trustees of family
trusts, and bodies corporate under common control of trustees or related parties.
Application to diocesan financial statements
As stated above the nature of the disclosures is fully described in the SORP. For examples see
illustration below:
Transaction
Related party
Treatment & rationale
Any remunerated service, or
commercial transaction
Any Trustee/Director
Disclose specifics, setting out basis
for Charity Commission consent
Clergy stipends and pensions
Trustee/Director
Disclose general position – receives
stipend etc as officeholder not
trustee and as a member of a
beneficiary class not as an
individual
Grants and services with other
diocesan “accountable”
bodies
Board of Education etc
Disclose – under common control of
Diocesan Synod
Joint funding – video project
on Marriage (see below*)
Mothers’ Union
Disclose – joint venture
Loans from CBF Funds (see
below*)
Archbishops’ Council &
PCC
Disclose specifics
Management fee (see below*)
Diocesan House Trust
(separate charity) of
which DBF custodian
trustee and administrator
Disclose specifics
Any
PCCs, Church schools
etc
No disclosure – no control
* Note that the three disclosures flagged above may not be required under a strict interpretation of
FRS 8 but are included in the interests of transparency.
3.
Investment policy and the Trustee Act 2000
Under the revised SORP charities are required in the trustees’ report to disclose their investment
policy and the performance against that policy. Under the Trustee Act 2000, replacing the Trustee
Investment Act 1961, trustees (charities included) have been given absolute powers of investment.
akin to those of a beneficial owner. The Trustee Act 2000 does not affect the corporate (i.e.
unrestricted) funds of charities which have been set up as companies, though it does affect all trust
Diocesan Annual Report and Financial Statements Guide - 25
fund investments – i.e. those of endowed funds and also restricted income funds. Most, but not all,
Diocesan Boards of Finance have charitable status and are also incorporated as companies.
Although the Trustee Act 2000 does not apply to the corporate investments of charitable
companies, from the point of view of good practice, there is much to be gained from working
within it for corporate as well as trust investment decisions. Diocesan Boards of Finance also need
to be aware that the Trustee Act 2000 does apply to investing for separate unincorporated trusts,
which investments they may be holding as custodian trustee, and that this must inform their duty to
act on the lawful instructions of the charity trustees in such cases. When disclosing their corporate
investment policy and performance under the SORP, this Guide recommends that DBFs consider
drawing upon the Trustee Act 2000 for best practice guidelines. The Charity Commission produce
operational guidance on their website www.charitycommission.gov.uk.
DBFs need to ensure that their investment policy is written down. There needs to be a clear link
between the policy and the nature of the investments held. The suitability, diversification and
performance of investments should be reviewed regularly. The investments of unincorporated trusts
can be invested in any kind of investment, not excluding land (legislated for elsewhere), in which
they would be allowed to invest if they were the absolute owners of these funds. Professional
advice should be obtained wherever the Board does not have the expertise needed for this. Specific
restrictions or exclusions in the pre-February 2001 governing instruments of the individual trusts
need to be adhered to. Dioceses often use vehicles such as a Glebe and Stipends Committee to
provide investment advice. Although it is legitimate to delegate investment advice to a subcommittee the decision-making and the duty of care remain strictly with the directors and trustees
of the Board of Finance itself except where the rules in the Trustee Act 2000 are adhered to.
Investment assets should be included at open market value on principle, but this is modified by the
SORP for the valuation to be on a ‘best estimate’ basis (suitably explained) in the case of:
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investments not listed on a recognised stock exchange (price/earnings vs. underlying assets);
investment property (residential, commercial or specialised institutional); and
investments in subsidiary undertakings (SORP paragraph 303).
In the first and third cases the SORP permits historical cost to be used if valuation is too difficult or
unreliable, while for what the SORP calls “programme-related” or “social” investments (i.e. loans
made or equity interests, etc., acquired, as a way of delivering public benefit rather than primarily
for a commercial return) the SORP specifies historical cost, subject to annual reviews for any
‘impairment’ which is then to be treated as charitable grant expenditure.
In drafting a policy for investment selection the following points need to be considered for
inclusion:
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Who takes the decisions on investment – the Board, a sub-committee(s), or officers?
What are the principles underlying those decisions?
Do those principles include an ethical dimension or social/environmental considerations?
Are the decisions effected by an individual, an investment adviser or manager, a charitable
investment company (e.g. CCLA) or in the case of investment property a property agent,
surveyor or valuer?
In the case of investment property how are receivable rents and arrears reported and dealt with
or gains and losses on disposal shown?
How often is the policy reviewed and for delegated investment decisions what are the
monitoring arrangements to ensure adherence to the (written) policy?
Diocesan Annual Report and Financial Statements Guide - 26

4.
Can the policies be justified by reference to the DBF’s charitable Objects (from the governing
document)?
Risk assessment and management strategy
As with SORP 2000, trustees will have to demonstrate that they have considered the major areas of
risk to which the Board is exposed and have established systems to mitigate against those risks they
have been able to identify (SORP paragraph 45). This disclosure will fall within the section
Structure, governance and management.
Risk can be defined as “the uncertainty surrounding an event or action which may significantly
affect, either adversely or otherwise, the organisation’s ability to achieve its objectives and execute
its strategies as well as maintain its operational performance and the expectations placed on it”.
The term “risk” can include any circumstances that may, or do, have an adverse effect on an
organisation’s activities, and is wider than financial markets. Risks relate not only to the negative
consequences of a threat materialising, but also to the impact of not taking advantage of
opportunities.
Undertaking a risk assessment should be seen as an opportunity to provide better management - a
chance to overcome barriers to success and improve performance - not simply as an exercise to
ensure SORP compliance. But the process is time-consuming and changes may need to be made to
the activities of key staff to ensure the process becomes embedded as a management tool. For
dioceses it may be useful to share ideas and/or expertise on the process on a regional basis. Within
a diocese the process may have to start with the senior management team of the DBF and then be
replicated across activities and different departments.
Key objectives of risk management include:
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increasing the likelihood of objectives being achieved
avoiding financial loss and damage to reputation
prioritising resources and providing early warnings of problems
promoting a culture in which all employees manage their own risks
improving performance and growth
exploiting opportunities
For a risk management strategy to be successful it is important to build on what is already in place,
keeping it simple and leading from the top but with ‘buying in’ by all employees. Take care not to
spend too much time identifying rather than managing risk, selecting other people’s risks rather
than your own, and failing to distinguish between risk management and internal audit.
A basic risk management cycle:
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identifies risks
assesses and prioritises risks
identifies and develops risk management strategies
implements an action plan
maps or documents the risks
monitors each incidence of major risk and its outcome
reports, reviews, refreshes and improves the strategies (beginning the cycle again, so that the
process becomes embedded at all levels – trustees and employees).
Risk management is not a one off-event.
Diocesan Annual Report and Financial Statements Guide - 27
The SORP requires a statement on ‘major’ risks i.e. those that would have a severe impact on the
functioning of the DBF as a charity. But the risks faced by any charity depend very much on the
size, nature and complexity of the activities undertaken and the finances of the charity concerned.
It is acknowledged in the Charity Commission’s website guidance that no single list or
classification of risk can ever be complete. Similarly there is no one model of risk assessment or
management though each model has a number of core elements as shown in the basic risk
management cycle above. Any risk assessment and management strategy will need to ensure that
the key areas of risk arising from both internal and external factors are considered as well as being
charity specific (i.e. reflecting the activities of the Board). One possible classification system
covers the following five areas:
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Governance/strategic risk
Operational risk
Financial risk
External risk (from public perceptions/policy, social and environmental change, etc.)
Compliance/regulatory risk (associated with statutory and other legal requirements)
Once identified, there will need to be a measurement of the risk, an identified response to the risk,
an assessment of any residual risk and an indication of how the risk will be monitored. Internal
threats or opportunities should be more easily controlled or prevented, whilst external threats and
opportunities are likely to be harder to control.
The measurement of risk needs to include the likelihood or probability of the risk happening
together with the impact or consequence of the risk. Gross risk is the product of the severity of the
impact of the risk and the degree of likelihood of it occurring. This can be calculated by scoring
both the severity of the impact and the degree of likelihood of occurrence and multiplying the two
scores together. Determining the gross risk can lead to effective risk mapping and the identification
of those risks which fall into the ‘major risk’ category.
Methods of managing risk range from:
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

transferring the risk to a third party e.g. trading subsidiary, or other third party;
reducing the impact of the risk through internal controls, e.g. documenting existing systems,
business continuity planning, internal financial controls, diversification, dual sourcing, data
backups, personnel policies etc;
reducing the probability of risk or eliminating it, e.g. building security, logical access controls,
checks, supervision, controls on recruitment etc.;
accepting the risk, e.g. diverting existing resources if the threat actually materialises, ignore the
consequences and do nothing as cost of management outweighs impact if risk materialises;
sharing the risk with others, e.g. joint venture project;
avoiding the risk by ceasing the activity;
insuring against the risk, e.g. adverse weather affecting a major outdoor event and damaging
profits.
Risk mitigation is aimed at reducing the ‘gross level’ of risk identified to a ‘net level’ or residual
risk. The Board’s trustees will need to form a view on whether or not the residual risk for each
major risk identified is acceptable. During the process it may be revealed that the control processes
are disproportionately costly or onerous in relation to the risk they seek to mitigate, and the trustees
will also need to address this issue. Unforeseen risks need to be allowed for as well as those that are
obvious. Control mechanisms require testing to ensure they are reliable and actually operate
properly. Monitoring of the process is essential.
Diocesan Annual Report and Financial Statements Guide - 28
For an illustration of some examples of risks applicable to dioceses, please see Appendix III. The
impact and probability factors have been scored 1-3 in the example – 1 being low and 3 high for
impact and 1 being less likely to 3 highly likely for probability. Scores of 1 to 5 could have been
chosen for more refinement of the system. Further information can be obtained from the Charity
Commission’s sector guidance (“Charities and Risk”) and operational guidance to be found at
www.charitycommission.gov.uk
5.
Grant making policies including procedure for non-disclosure
The SORP emphasises that grant making is not a charitable activity as such but a means or way of
delivering public benefit such as the relief of hardship in a given community.
Within the Trustees' Annual Report there should be reference to the grant making policies for
beneficiary selection and this could be cross referenced to the appropriate accounts note on grant
expenditure and “resources expended accounting policy” note. The accounting policies of the
Board need to recognise liabilities as including any constructive obligations under FRS12, and this
is particularly applicable to grants (SORP paragraph 155). For instance, a grant towards a new
worship centre committed in 2006 may not be taken up for several years, say 2012, due to
difficulties in obtaining all appropriate planning consents and hence starting to build. The
commitment should be included in the 2006 financial statements unless made conditional on such
consents being obtained.
The accounting policy should cover all grants payable in furtherance of the Board’s objects, as part
of the SOFA presentation combining charitable activities and their support costs, and this should be
supplemented by further information (see below) on material institutional grants included under
those headings. Where, for reasons of “serious prejudice” (see below), grant details have not been
disclosed under any of these headings, then the accounts notes should give their total amount,
number and general purpose and include a statement as to whether or not the details have been
given to the Charity Commission.
A grant is any payment, which the Board makes voluntarily (as distinct from contractually) to
another institution or to an individual in furtherance of the DBF’s declared objects (SORP Glossary
GL 29 and 30).
If grant making is a material part of total resources expended on charitable activities in a year, an
appropriate analysis and explanation of grants should be given. The purpose of the analysis is to
help the reader understand how the grants made relate to the objects of the Board and how the
Board has pursued its objects by this means. The analysis can be contained in the notes to the
financial statements, the trustees’ report or a separate publication. The last document must be a
public document available on request. Disclosure should distinguish between individual grants,
where there is a direct benefit to the person concerned, and institutional grants. The analysis should
provide the reader with an understanding of the nature of the charitable activities being funded by
the grant maker in terms of the latter’s objectives (SORP paragraph 204).
There needs to be a reconciliation between the analysis (whether given in the notes, report or a
separate publication) and the amounts in the SOFA. This may also require showing the value of
grants treated as contingent liabilities (SORP paragraph 161) or discounted in line with paragraphs
323 of the SORP or not disclosed (see above) in accordance with paragraph 208.
Paragraph 209 of the SORP makes provision for the non-disclosure of institutional grants if the
details of the disclosure could seriously prejudice the work of the Board or the recipient institution.
But the notes to the financial statements need to show the number, value and general purpose of
Diocesan Annual Report and Financial Statements Guide - 29
grants not disclosed. The details of non-disclosure need to be sent to the Charity Commission with
a full explanation of why the details have not been given in the financial statements. Also as stated
above the notes must state whether or not the Charity Commission has been provided with the
details of undisclosed grants (SORP paragraph 209).
It is recommended that in the accounts note analysis of “Cost of charitable activities”:
 Under Grants Payable the following are included and analysed as described above:
Grants to PCCs or School Governors for the provision, repair and improvement of church
buildings, parish halls or aided schools whether or not from unrestricted or restricted funds; grants
to ecumenical councils and other similar bodies; grants to diocesan conference/retreat house or
DBE if separate charity and the contribution towards the national Church responsibilities.
 The following payments, which may be considered by some people as grants, are recommended
for inclusion under the “Cost of charitable activities” accounts note as “activities undertaken
directly” (see Table 5, SORP 2005 para 194) due to the semi-contractual nature of the payment:
Removal, resettlement and ordination grants; support of ordinands and their families during
training; continuing ministerial training or sabbatical/study leave grants; grants to retired clergy,
clergy widows/widowers and separated or divorced clergy spouses.
Diocesan Annual Report and Financial Statements Guide - 30
Annexe B
Other useful information
Recent Publications
The Essential Trustee – What you need to know (June 2005)
This is an update of CC3 for all existing and would be trustees. It is described by the Charity Commission
as “Guidance from the Charity Commission for all who serve as Trustees or Directors on the governing
body of a charity, or who are about to take up trustee responsibilities”. New trustees should be made
aware of the contents of this publication as part of their induction process. Available from the Charity
Commission website.
Good Governance – a code for the Voluntary and Community Sector. (June 2005)
This has been published by the National Hub of Expertise in Governance and is a code for the Voluntary
and Community Sector. It is similar in objective to the various codes that have been published for the
business sector. Available from www.governancehub.org.uk
Start as you mean to go on: trustee recruitment and induction RS10 (July 2005)
This is a report following research by the Charity Commission into the topic of trustee recruitment and
selection and in this study they “illustrated good practice and explained where there was room for
improvement”.
Other Useful Publications / Sources
Charity Commission publications
A full list of their publications is available on their website, and the following are of wide application:
o
o
o
o
o
o
o
o
o
o
o
o
o
CC3 - The Essential Trustee
CC8 - Internal Financial Controls for Charities
CC11 – Payment of Charity Trustees
CC14 – Investment of Charitable Funds
CC19 and RS3 – Charity Reserves
CC35 – Charities and Trading
CC60 – Hallmarks of an Effective Charity – this is a key publication and the six Hallmarks are used
by the Charity Commission as benchmarks in their monitoring visits.
RS1 – Trustee Recruitment, Selection and Induction
RS6 – Milestones – Managing Key Events in the Life of a Charity
RS8 – Transparency and Accountability
RS10 – Start as you Mean to Go On
Accounting and Reporting by Charities – Statement of Recommended Practice (SORP 2005)
Public benefit – the Charity Commission’s approach – Illustrative material for the Charities Bill
The Charity Commission are also planning to undertake a consultation on public benefit, if the changes
proposed in the Charities Bill become law.
Trustees should be made aware of this guidance and advice on induction and, as a group, should be kept
up to date with these issues.
Diocesan Annual Report and Financial Statements Guide - 31
3.
Structure of Financial Statements
3.1
A diocese is subject to normal accounting requirements, as explained in section 3. This section
discusses the form of the accounting statements. Remember the aim is to encourage readers to have
a better understanding of the financial position of the diocese and to present a true and fair view.
3.2
DFS should include the following statements:






Statement of financial activities - SOFA (see SORP 2005);
Summary Income and Expenditure statement – usually consolidated only;
Statement of total recognised gains and losses (where not incorporated into the SOFA) consolidated (see FRS 3);
Balance sheet - consolidated and parent company;
Accounting policies;
Other Accounts Notes.
Statement of Financial Activities ("SOFA")
3.3
At Appendix VIII is a suggested format for the statement of financial activities (“SOFA”). This
complies with SORP 2005, which altered the layout of the SOFA from SORP 2000. It also adapts
the format suggested in SORP 2005 to emphasise those areas likely to be of most significance to
dioceses. The suggested format is clear and simple but provides at a glance all the relevant
information required of a SOFA. Hopefully this will enable a wide readership, both inside and
outside the diocesan structure, to gain a greater understanding and insight of diocesan finances.
In adopting the format it is expected that, where applicable, notes will be attached to the various
captions/headings to provide the necessary detail. Appendix VII sets out guidelines for the SOFA
and is included within Appendix VIII.
The SOFA is not intended to demonstrate a diocese's efficiency but shows how the diocese
received and applied its resources in a given period to meet its objectives (SORP para 13).
Similarly, the balance sheet is not necessarily a measure of the wealth of the diocese but does show
the resources available, what form those resources take and how they are held in different funds,
and provides information about the liquidity of assets and general solvency (SORP para 12).
3.4
The suggested format for the SOFA has incorporated the following points:
1
The SOFA is required, as a minimum, to analyse incoming resources and resources expended
by class of fund (unrestricted, restricted and endowment). Further analysis of these classes of
fund should be undertaken by way of note. However, if any fund in a class is particularly
material and the diocese wishes to draw attention to it, additional columns can be included in
the SOFA (SORP para 87).
2
The top section of the SOFA comprises the incoming resources and resources expended
account. It is recommended that the principal headings are limited to those shown and that
individual captions may vary from those shown to suit the diocesan in question. Relevant
details of each caption would then be set out in notes.
3
As the SOFA is to show all incoming and outgoing resources, not only income and
expenditure items, it will normally be necessary to prepare a separate Income and Expenditure
Diocesan Annual Report and Financial Statements Guide - 32
Account, unless there are no movements on endowment (capital) funds during the year or
unrealised gains or losses - (SORP para 424).
4
As an option, the SORP allows the total cost of generating funds to be deducted from total
incoming resources to arrive at a sub-total "net incoming resources available for charity
application". As a faith-based organisation as opposed to a fund-raising organisation, the cost
of generating funds is not relevant to the majority of the income received by a diocese. The
sub-total would not therefore provide further meaningful information. So this Guide
recommends the option is not used and the cost of generating funds is shown under resources
expended (see Appendix VIII).
5
In some instances income arising from an endowment fund may be held on different trust
terms from the capital of that fund. This income should be shown in the fund column most
appropriate to the terms on which it is held. For example, income from the Stipends Fund
Capital Account (endowment column) is shown in the Stipends Fund Income Account since it
must by Measure be credited to that fund and can only be used for stipend purposes – (E&GM
1976) – which normally happens within the same year. Similarly, income on a permanent
endowment (endowment column), which under the terms of the endowment can be used for
general purposes, should be credited directly to unrestricted funds (unrestricted column).
6
All “special trust” funds relating to the charity should be considered for inclusion, even funds
held by another body e.g. Church Commissioners or Archbishops’ Council. (See section 5
Funds: Aggregation and Consolidation).
7
Costs should be allocated to individual activities. The costs of undertaking activities will
include support costs which will need to be allocated to those activities (SORP para 164-165).
The notes to the accounts should provide further information on the total of support costs and
how they are allocated to specific activities.
8
All items should be reported gross. This includes glebe income, Church Commissioners’
grants towards stipends/parsonages/legal fees etc, guaranteed annuities and contributions from
parishes towards specific items of work, say on parsonages.
9
Where a diocese receives a payment simply as a disclosed agent for a third party it should not
recognise the incoming resources in its SOFA, provided it is legally bound to pay over the
money to the third party and has no discretion and therefore ultimate responsibility for its
proper application under charity law. But if the diocese owns the resource prior to transfer to
the third party and has responsibility for its application or it has to accept legal responsibility
for the transfer of the grant then it should be included in the diocesan SOFA (SORP paras 112
and 113). See particularly para 4.15 on voluntary aided church school building projects.
10 The second section deals with transfers between funds of capital or income. A note to the
accounts should give the nature and reasons for each material transfer. For example a transfer
from the Diocesan Pastoral Account to the Stipends Fund Capital Account or the setting aside
of a sum of money as a loan fund to assist parishes with church building repairs - (SORP para
214).
11 The third section deals with investment gains and losses both realised and unrealised, and
unrealised gains and losses on fixed assets for the charity’s own use.
Diocesan Annual Report and Financial Statements Guide - 33
12 The final section of the SOFA shows the reconciliation of opening and closing funds,
including movements for the year and any prior year adjustments, which restate the opening
balances.
13 The notes to the SOFA should analyse the funds, which are included in total in the SOFA. The
notes should also explain the restriction on use of the income and capital of all material funds.
14 The Charity Commission requires for monitoring purposes an unconsolidated rather than a
consolidated charitable company SOFA. It has however not been their practice to request a
separate company SOFA where the charity’s SOFA is discernible from the consolidated
SOFA – (see also section 1.7). This has been clarified in SORP 2005 as a requirement for the
notes to disclose the charity SOFA’s ‘key results’ for the year, e.g. gross income, fundgenerating costs, charitable activity costs, governance costs – SORP paragraphs 397 and 405.
Classes of Funds
3.5
Appendix 3 of the SORP explains the status of each of the different classes of funds. It is not
always easy to determine whether a particular fund/account is restricted income or an endowment
and this Guide does not seek to enlarge on the explanation in the SORP. But it is essential that the
classification of every fund/account is clarified without doubt by a diocese and reported
accordingly. While the use of separate funds/accounts should be eliminated as far as possible, all
DBFs will have more than one under their control which they must legally account for separately
though they are aggregated and/or consolidated in the SOFA. The notes should indicate how the
funds have arisen, the purposes for which they are held and the material individual balances. Those
of general application are described in the following paragraphs.
3.6
The general fund is the main corporate (unrestricted) fund of the DBF. Typically the general fund
receives the parish share/quota. It may also receive investment income both (a) on its own fund
balances and (b) on endowed funds where the use of the income is unrestricted.
3.7
There may be other unrestricted but designated funds. A designated fund is one which has been
earmarked from unrestricted income for a particular purpose or project. The designation does not
legally restrict the trustees’ discretion to apply the fund.
In the past, a number of dioceses, and the 1st edition of this Guide, considered the Diocesan
Pastoral Account (DPA) to be an unrestricted though designated fund due to the apparent wide
scope of its use. The 2nd edition took the Charity Commission view that the DPA is normally a
restricted fund. However, please see the analysis in paragraphs 7.1 and 7.2 which concludes that,
in some circumstances, the DPA may be classified as an unrestricted fund.
3.8
The Diocesan Stipends’ Fund Capital Account (DSF Capital) is restricted as to capital and its
income must be credited to the Diocesan Stipends’ Fund Income Account (DSF Income), for use in
payment of part of the cost of stipends. The Guide recommends the classification of the DSF
Capital Account as expendable endowment, following the changes made to the Diocesan Stipends
Fund Measure 1953 by the Miscellaneous Provision Measure 1992 allowing the use of DSF capital
for the improvement as well as purchase of parsonage houses.
3.9
The parsonage houses fund (or similar name) represents the benefice houses carried in the balance
sheet together with the Parsonage Building Funds held by the Church Commissioners. Again the
Guide recommends this is classified as expendable endowment. Whilst the individual dioceses are
not free to dispose of the houses except in accordance with the appropriate Measures, there is
Diocesan Annual Report and Financial Statements Guide - 34
provision for the net proceeds of sale to be applied to either the DPA or the DSF Capital once a
disposal has been effected.
Income and Expenditure Account
3.10 As mentioned under Appendix III there are a number of regulatory requirements which DBFs are
required to follow and not all of these necessarily slot together smoothly.
The Companies Act 1985 requires all charitable companies to include an income and expenditure
account in their financial statements. The SOFA is designed to include all incoming resources and
outgoing expenses of a charity together with a statement of total recognised gains and losses and
reconciliation of fund balances as required by FRS3, but a decision will have to be taken in each
case as to whether or not it satisfies the requirements of the Companies Act. If the SOFA includes:
a)
material movements on endowment funds during the year; and
b)
unrealised gains and losses arising during the year (i.e. mixed in with those realised);
and if it is therefore not possible to identify the year’s income and expenditure separately within the
SOFA (including comparative figures), then a separate income and expenditure account will be
required (SORP para 423 and also in para 3.4.3 above).
Where the SOFA does not contain a) or b) above then a DBF may not have to prepare a separate
income and expenditure account but the title and some of the headings in the SOFA will have to be
changed, see SORP para 424 for exact details.
However, for comparability and easy of operation, this Guide recommends a separate income and
expenditure account is prepared in addition to the SOFA, as:
 particular care will need to be applied in relation to impairment losses and reversals which may
be realised in some cases and unrealised in others; and
 in one year there may be material movements in endowment funds but not in the next.
Statement of Total Recognised Gains and Losses
3.11 This statement follows on from the income and expenditure account to show all the recognised
gains and losses that cannot legally be included in a company’s distributable profits for the year, so
it includes the unrealised revaluation gain in the year on any fixed assets for DBF use carried at
current value and also on all investment assets. See Appendix VIII for an example.
Statement of Historical Cost Profit and Loss
3.12 This note is required where a company has revalued assets and has either disposed of them during
the year or depreciated them. The aim of the statement is to show the statutory results for the year
as though there had been no revaluations. The two most likely amounts to be included are the
realised revaluation reserve on any asset disposal (effectively including the historical cost profit on
any disposals), and the difference between the amount of depreciation of an asset on cost and the
actual amount charged in the accounts on the revalued amount.
Balance Sheet
3.13 The balance sheet provides a snapshot of the diocesan assets and liabilities at the end of its
accounting year and how assets are split between the different types of funds. If for any reason any
Diocesan Annual Report and Financial Statements Guide - 35
heritage assets or contingent liabilities are omitted then the details of the same must be included in
the notes to the accounts (SORP paras 279 - 294 and 340 – 348).
A company balance sheet and a consolidated balance sheet should be presented where the DBF has
one or more subsidiary undertakings in accordance with FRS2.
As a minimum the balance sheet should show unrestricted income, restricted income and
endowment funds separately. Further analysis into permanent and expendable endowment or
designated funds can be made by way of note rather than on the face of the balance sheet. The
analysis should enable the reader to gain a true and fair view of the assets and liabilities in relation
to spread and character, which may mean identifying positive and negative balances on restricted
funds (SORP paras 246 – 251).
The balance sheet should be structured under the following headings:











Fixed Assets
Current Assets
Creditors, amounts falling due within one year
Net current assets or liabilities
Total assets less current liabilities
Creditors, amounts falling due after more than a year
Provisions for liabilities and charges
Net assets or liabilities excluding pension asset or liability
Defined benefit pension scheme asset or liability
Net assets or liabilities including pension asset or liability
The funds of the DBF divided into unrestricted, restricted and endowment funds.
Unless the Balance Sheet is split into fund columns, an analysis of assets and liabilities by class of
fund should be given in the notes to the financial statements.
Total Return
3.14 The Charity Commission’s operational guidance on total return investing will affect a number of
dioceses with investments held as part of permanent endowment. Since this guidance augments the
SORP, which only briefly touches on Total Return accounting, it seems appropriate to address this
issue in the Guide.
Income arising from investments held in permanent endowment funds will normally be treated in
accordance with the terms of trust accruing to the endowment. Capital gains and losses will
normally accrue to the endowment capital itself.
Where a diocese has obtained an order permitting the trustees to apply a “total return” approach,
then the allocation to income will be made from the accumulated “unapplied total return” since the
base date adopted under the Order. It is unlikely that such an approach could ever be authorised for
a non-financial permanent endowment, as it can only apply to investment assets, and this excludes
assets such as DBF functional property / parsonage funds where held for the DBF’s own use as
clergy housing, etc., instead of investment purposes – see 6.10.
Although reference should be made to the Charity Commission’s operational guidance
(www.charity-commission.gov.uk) for the full accounting requirements, in summary the financial
statements should:
Diocesan Annual Report and Financial Statements Guide - 36
 Show all investment income from endowments as credited to the endowment fund column, as an
incoming resource, and disclose in the endowment column all gains and losses on revaluation
and disposal of those investment assets;
 Where the Board has exercised its power under an order to allocate part of the unapplied total
return to the trust for application (income), the amount so allocated in respect of the financial
year should be disclosed by way of transfer from the endowment funds column to the relevant
income funds column of the SOFA on the inter-fund transfers line;
 Where the allocation made exceeds the investment return obtained in the year, it should also be
dealt with by a transfer in the current financial year and not by prior year adjustment of funds
brought forward (note also that once the balance of unapplied total return since the base date
adopted under the Order has been exhausted, no further allocations can be made until new total
returns become available);
 Disclose in a note the balance of unapplied total return, explaining the movements during the
year, for each major fund separately;
 Describe the fund, or refer to a description of the fund if under another note.
Cash Flow Statement
3.15 FRS 1 requires the preparation of a cash flow statement for charitable companies above the
threshold specified in Appendix 2 of the SORP (currently any two of the following three
conditions: gross turnover of over £5.8m or balance sheet total of over £2.8m or over 50
employees). The structure of the statement should comply with the requirements of FRS 1 though
bearing in mind the requirements of the SORP as set out in paragraphs 351 –355:

The analysis of cash movements should follow the activities reported in the SOFA and give
appropriate detail;

Movements in endowments should be shown as increases/decreases in the finance section;

Major transactions not resulting in cash movements should be disclosed by note if necessary,
e.g. release of expendable endowment;

Cash (and any financing movements) should be reconciled to opening and closing balances;
and

Cash flow from operating activities should be reconciled to the net incoming
resources/expenditure line of the SOFA.
Accounting Policies and Notes
3.16 Accounting policies are the principles by which transactions are recognised, measured and
presented in a set of accounts. These are supplemented by estimation techniques where judgement
is required. It is essential that accounts set out the basis and estimation techniques on which they
are prepared and charities are not excepted from this rule. The various accounting standards are
quite clear in what applies to charities – regardless of whether or not they are charitable companies.
A departure is not justified simply because it gives the reader a more appealing picture of the
financial position of a charity.
The ‘accounting policies’ note to the accounts should therefore explain the policies and techniques
Diocesan Annual Report and Financial Statements Guide - 37
adopted, also specifically for each material item in the accounts. Explanations need only be brief
but must be clear, fair and accurate. Significant changes in accounting policy from one year to the
next must be disclosed in detail and should be exceptional, for example changes brought about by
changes in accounting standards. The SORP devotes a special section to the accounting policies
which must, as a minimum, be disclosed by a charity and these are listed in paragraphs 356-370 of
SORP 2005.
Diocesan Annual Report and Financial Statements Guide - 38
4.
Funds: Aggregation and Consolidation
Definitions
4.1
Aggregation is the action of including a branch or dependent trust fund in its entirety in the entity
financial statements of the DBF. The fund being aggregated should be included as unrestricted or
restricted income or else endowment capital and dealt with as laid out elsewhere in this Guide.
Charity branches, as defined at GL4 in Appendix 1 of the SORP, should be aggregated in line with
the public accountability provisions of the Charities Act 1993.
4.2
Consolidation is the action of combining a self-accounting charitable or non-charitable subsidiary
or quasi-subsidiary undertaking of the DBF with all the funds making up the above entity accounts
of the DBF in order to produce group accounts under the Companies Act 1985 and as described in
FRS 2 Subsidiary Undertakings and FRS 5 Substance of Transactions. As a further refinement, the
DBF’s interests in any charitable or non-charitable corporate joint ventures or associated
undertakings as described in FRS 9 Associates and Joint Ventures are also to be included (using the
‘gross equity’ or ‘net equity’ method respectively) – or in the absence of consolidated accounts
such interests should be accounted for in the DBF’s entity accounts by the same method.
The funds administered by DBFs
4.3
4.4
In order to determine which trust and other funds should be included within DBF financial
statements and how, the funds administered by DBFs should first be classified within the following
categories:
a)
those non-trust funds belonging to the DBF absolutely as a charitable company (i.e. its
corporate funds)
b)
those trust funds which are distinct charities separate from the DBF but of which either the
DBF is sole or controlling corporate trustee or the DBF is the sole beneficiary (these, being
trust funds, will normally be restricted as to income or capital or both);
c)
those funds which belong to charitable or non-charitable companies which are considered
as subsidiaries or quasi-subsidiaries of the DBF or in which the DBF has a ‘participating’
interest (20% or more, subject to circumstances).
Although those other trust funds classified as 4.3 b) are technically separate charities, they will
normally be ‘special trusts’ or ‘charity branches’ of the DBF under ss.96 or 97 of the Charities Act
1993 and should therefore be included in the DBF financial statements. The Glossary at Appendix
1 of the SORP, definition GL3 states that the funds of such separate charities should be aggregated
with those of the DBF if either:
a) they are administered by or on behalf of the DBF and held for specific purposes which are
within the general purposes of the DBF; or
b) the Charity Commission has united the separate charity with the DBF by a direction under
section 96(5) or 96(6) of the Charities Act 1993.
The Charity Commission has indicated that even though directions under section 96(5) or 96(6) of
the Charities Act 1993 may not have been obtained for certain charities controlled by DBFs, in
Diocesan Annual Report and Financial Statements Guide - 39
order to include all the trust funds under a DBF’s control in one set of financial statements, DBFs
should nevertheless treat such distinct charities as branches and aggregate them in the DBF
financial statements.
4.5
Funds classified as 4.3 c) should be included within group accounts along with the abovementioned entity funds of the DBF. Such subsidiaries are normally accounted for by consolidation
as per 4.2 above.
4.6
Further reference (SORP paras. 381 to 406 and 407 to 418, and Appendix 1 GL4 and GL44 and
Companies Act 1985 sections 258 and 259).
4.7
Naturally, circumstances will vary and each diocese will have to establish whether it has any
subsidiaries or quasi-subsidiaries, which should be included in consolidated group accounts, and/or
any corporate joint ventures (or consortium undertakings) and associated undertakings to be
accounted for. In some dioceses it may be necessary to prepare individual company financial
statements, consolidated group financial statements and an amalgamated directors’ and trustees’
report - and perhaps financial statements bringing together with the DBF all the related legal
entities (e.g., an autonomous Board of Education) within a diocese in order to provide an overview
of the diocese’s activity – even though without statutory validity.
4.8
True subsidiaries are relatively simple to identify in accordance with the provisions of the
Companies Act 1985 (as amended by the Companies Act 1989). However, the position as regards
quasi-subsidiaries (where ‘all the risks and rewards of transactions’ with a separately accountable
entity remain with the DBF) is more difficult; an entity which is seen to constitute a quasisubsidiary in one diocese might not be so regarded in another.
4.9
Where the DBE is neither a special trust to be included in the entity accounts of the DBF, nor an
actual or quasi-subsidiary to be included in the DBF's consolidated accounts, it may nevertheless
have been custom and practice and is still in order for the DBF to amalgamate the DBF and DBE
accounts within a (non-statutory) annual review for the Diocese.
4.10 Areas of diocesan life which could be described as common to all dioceses but which may be
treated differently from one diocese to the next are given below:
Trusts
4.11 See separate section 5.
Diocesan Retreat Houses etc
4.12 In many dioceses diocesan retreat/conference houses/centres will be considered as separate entities.
It is recommended these should be consolidated as quasi-subsidiaries, unless they are definitely
separate charities where neither the DBF exercises complete control nor are they and the DBF
‘under common control’ by the Diocesan Synod. Good management accounts will be required
whatever the overall accounting treatment may be. As a separate charity such establishments may
not seem to have a significant impact on diocesan life. But that may not be the case if the diocese
provides substantial grant aid and this emphasizes the importance of reporting grants. As a quasisubsidiary, the asset/liabilities of such places may be more obvious.
Diocesan Annual Report and Financial Statements Guide - 40
The Diocesan Board of Education (DBE)
4.13 All legal aspects of the relationship between the Diocesan Synod (the policy making body of a
diocese), the Board of Finance (usually the financial executive of the Diocesan Synod) and the
Board of Education will need to be considered by each diocese in conjunction with its auditors (and
probably the Diocesan Registrar) in order to determine the situation applicable to itself. There is no
single solution that can be applied across all dioceses.
A Diocesan Board of Education may be a separately constituted charitable limited company with
its own directors/trustees and will be required to present its own report and financial statements.
However, whether or not it is a charitable limited company it will be responsible to the Diocesan
Synod (DBE Measure 1991). If the diocese is structured in such a way that the membership of the
Diocesan Synod is also the membership and directors of the DBF, even as a separate charitable
company the DBE may be a quasi subsidiary of the DBF and require consolidation unless it can be
shown that the mutually exclusive objects of each charity and the lack of any financial benefit
rights on either side are valid grounds for exclusion.
In addition, a Diocesan Board of Education may be substantially self-financing or it may be
financed in part or wholly out of the general revenue of the DBF. In the case of the DBE being a
separate charitable company such payments should be classed as grants. The reason is that the
payment is to another body not under the direct or indirect control of the reporting body. But where
the DBE is not a separate charitable company such payments will simply come under the costs of
activities in furtherance of the DBF charity’s objects. The situation can be further complicated as
the staff of the separately constituted DBE may be employees of the DBF and contributions for
those staff costs, in part or whole, are made to the DBF from the DBE. Such payments would come
under incoming resources of the DBF as reimbursements of payroll activity (see Appendix VIII)
and under costs in support of activities or management and administration in resources expended of
the DBE.
4.14 In some dioceses the DBF or DBE has traditionally been involved in helping voluntary aided
church school governing bodies with projects involving major funding streams from the
Department of Education and Skills (DFES). This has entailed paying contractors’ and
professional fee invoices on behalf of the governing body concerned, claiming the appropriate
grant (recently 90%) from the DFES, and collecting the governors’ (and sometimes the local
authority) contributions. The DBF or DBE might also have made a grant to such projects from the
amounts referred to in the following paragraph, held on uniform statutory trusts. The DBF or DBE
might also submit their invoices to the governing bodies concerned for professional surveying,
project management or administrative fees relating to the project. The gross turnover of such
activity can amount to considerable sums, particularly in dioceses with many voluntary aided
church schools, or where a major new build is concerned.
This Guide recommends that the payment of such invoices be accounted for not as expenditure of
the DBF or DBE, but simply as the making of short term cash-flow loans to the governing bodies
concerned, repaid when the appropriate DFES grant and governors’ contributions are received,
since essentially the DBF or DBE is acting as the agent of the appropriate governing body in these
transactions. Thus the only aspects of such activity to be reflected in the DBF or DBE SOFA
should be the making of grants to such projects, and any fees paid by such projects to the DBF or
DBE for professional or other services rendered.
Diocesan Annual Report and Financial Statements Guide - 41
The recent change in DFES arrangements for making voluntary aided school annual devolved
formula capital grants available to schools (or the DBFs or DBEs) in advance of project spend or
approval does not affect this guidance.
This Guide also recommends that where it is material the turnover of such activity be disclosed in a
note to the accounts, so that readers can gain an appreciation of the extent of this activity, in which
DBF or DBE staff time is engaged.
4.15 Certain redundant Church of England school premises, teachers' houses and associated
endowments will have been vested in either the DBE or the DBF by a scheme under section 86(1)
of the Education Act 1944. Other assets will similarly have been vested by more recent schemes
under section 2 of the Education Act 1973 or orders under section 554 of the Education Act 1996.
These assets are held on special trusts, and should be accounted for in the financial statements of
whichever legally recognised charity (whether or not it is an incorporated body) they are used by
(as distinct from the charity they are vested in, which if different will need to detail the assets in its
Annual Report as their custodian trustee), as reflecting restricted funds of that publicly accountable
charity. Hence where the DBE is not a separately accountable charity (whether or not as an
incorporated body), and where in consequence such assets have not only been vested in the DBF
but must be accounted for as belonging to its ‘special trust’, then these assets should be included in
the financial statements of the DBF, along with all other transactions relating to the DBE as a
‘branch’ or department of it.
Diocesan Annual Report and Financial Statements Guide - 42
5.
Trust Funds
Factual Description
5.1
Dioceses are usually involved in trusts in a number of different ways. The diocese may combine
any or all of the roles of:

Managing trustee - directing the affairs of the trust, including the investment of its assets and
its distributions.

Custodian trustee - safeguarding the assets on behalf of the managing trustees.

Fixed beneficiary - receiving all or part of the capital or income distributions of the trust, as of
right under the terms of the trust.

Discretionary beneficiary - receiving distributions from the trust, at the discretion of the
managing trustees, who may also make distributions to other beneficiaries.
Accounting Requirements
5.2
Every trust, being a separate legal entity, should prepare its own set of accounts in accordance with
existing charitable or trust law – unless it is either a ‘special trust’ of the DBF or else administered
by it for related charitable purposes. If included within the DBF accounts as part of its trust funds,
the trust will have no statutory accounts of its own. DBFs will therefore also be involved in
producing either internal or external trust accounts wherever the DBF is managing trustee. Where,
instead, the DBF is custodian only, the responsibility for producing a trust's accounts will rest with
the managing trustees.
5.3
Under the provisions of FRS 5, a DBF is obliged to consider not just the legal form but also the
substance of its transactions for accounting and financial reporting purposes. Trusts which a DBF
controls and from which the DBF benefits, either in the form of incoming financial resources or
even just through the furtherance of its own charitable objects, are indeed separate legal entities.
But effectively they are managed by the DBF for its own benefit and so, unless subject to branch
accounting under the Charities Act 1993, should be treated for accounting purposes as subsidiaries
and included in group accounts. The statutory accounts of the subsidiaries in such cases should be
consolidated with those of the parent, in this instance the DBF.
5.4
FRS 5 defines a quasi-subsidiary as "a company, trust, partnership or other vehicle that, though not
fulfilling the definition of a subsidiary, is directly or indirectly controlled by the reporting entity
and gives rise to benefits for that entity that are in substance no different from those that would
arise were the vehicle a subsidiary". This would catch, for example, a non-charitable discretionary
trust administered for the benefit of the DBF, but not a charitable trust, for which branch
accounting under the Charities Act 1993 would be required – unless the trust’s objects fell outside
those of the DBF. In the latter case charity law would not allow the DBF as charity trustee to
benefit financially, and consolidation exemption on grounds of ‘severe long-term restrictions’
would apply.
Diocesan Annual Report and Financial Statements Guide - 43
Application to DFS
5.5
In order to determine whether a trust is a quasi-subsidiary of the DBF the following aspects must
be examined:
a) Is the DBF a beneficiary? If not, and if the trust does not benefit the DBF financially and, as a
separately administered charity, is not a ‘special trust’ of the DBF (see above), it should not be
considered as a quasi-subsidiary.
b) If the DBF is the sole trustee, then the trust funds should be aggregated (not consolidated) in
the financial statements of the DBF.
c) The DBF may be controlling trustee without being sole trustee, e.g. by having majority voting
powers.
If the DBF does control the trust and is a beneficiary then unless accounted for as a charity branch
of the DBF (see above) the trust should be considered to be an actual or quasi-subsidiary.
5.6
Using the same reasoning, the following sorts of trust should not be considered to be quasisubsidiaries of DBFs, and should not be included in any DBF group accounts:
a) Trusts where the DBF controls the (non-charitable) trust, but where the DBF is not an eligible
beneficiary.
b) Trusts where the DBF does not control investment and policy, but where the DBF is a
beneficiary (if a charitable trust, either it will be accounted for by branch accounting under the
Charities Act 1993 or its distributions to the DBF will be included in the latter’s entity
accounts).
c) Trusts where the DBF neither controls the trust, nor is a beneficiary.
5.7
Where a trust can be considered as a quasi-subsidiary of the DBF, then the DBF should consolidate
the trust's accounts with its own to form group accounts.
5.8
In the group balance sheet the assets and liabilities of the trust will be added to those of the parent
DBF, and disclosed in accordance with the Companies Act 1985. The funds of the quasi-subsidiary
trust (if a charity) should similarly be added to those of the parent, and grouped together under the
classification given in the SORP, i.e. unrestricted funds, restricted funds, and permanent
endowment, or in the case of a non-charitable trust they should be shown as such under a separate
heading. Trust capital held on permanent trust should always be classified as permanent
endowment, and unspent trust income (unless accounted for under a Total Return Order, see below)
should be classified under the other headings according to the nature of the trusts concerned.
Total Return
5.9
This is dealt with under section 3.14.
Diocesan Annual Report and Financial Statements Guide - 44
6.
6.1
Properties
Properties should be classified within the following overall categories for inclusion in the balance
sheet:
(a)
6.2
Tangible fixed assets for the charity’s own use
(i)
Functional properties
(ii)
Heritage properties
(b)
Fixed asset investment properties
(c)
Current asset investment properties (where the intention is to realise the asset without
reinvestment of the sale proceeds).
Within each of the above categories there may be more than one “class” of property, e.g. functional
properties may include the class of “DBF corporate properties”, which may itself include both
houses owned outright by the DBF (class (a)), and also houses purchased partly with the help of a
value-linked loan from the Church Commissioners (class (b)). Each class of property may have its
own valuation method, which should be applied consistently to the properties within that class.
Benefice houses - background
6.3
The term benefice has a long history.
A benefice is an ecclesiastical office which, under Canon law, carries certain duties and conditions.
The office holder is known as the incumbent and is appointed to be responsible for the spiritual
needs of the people of the parish(es) concerned. In the past, each parish would have been identified
with a benefice. Today there can be several parishes linked in one benefice.
Benefice houses are legally vested in the incumbent (an ecclesiastical corporation sole) for the time
being. The position is unchanged during a vacancy in the benefice (interregnum) or when
presentation to the benefice is suspended by the Bishop under the provisions of the Pastoral
Measure 1983 (so that a priest-in-charge is appointed rather than an incumbent: the benefice still
owns the house. An incumbent is never free to dispose of the house for his/her own personal
benefit, he/she cannot make alterations, improvements etc. to the property without various consents
and he/she is not responsible as owner for maintaining the house. As occupier of the property an
incumbent is required to take proper care of the benefice house and to use the parsonage in a
tenant-like manner. See Appendix XI for further information.
6.4
The proceeds of sale of a benefice property belong to the benefice and must be credited to a
parsonage building fund (paragraph 7.11) for the benefit of the particular benefice concerned. Until
recently such parsonage building funds have been held by the Church Commissioners, but under
the Miscellaneous Provisions Measure 2006 the DBF will hold such funds. Parsonage building
funds should be applied to the replacement benefice house, if required, and any balance held until
pastoral reorganisation provides for the release of those funds or an appropriate application for
release under the Parsonages Measure is upheld.
6.5
Following pastoral reorganisation effected by a pastoral scheme a benefice house may be
Diocesan Annual Report and Financial Statements Guide - 45
transferred to diocesan glebe or to the DBF for disposal or to be held as a DBF corporate property.
Benefice houses – recognition
6.6
FRS 5 states that "Assets are, broadly, rights or other access to economic benefits controlled by an
entity" (FRS 5 summary paragraph (e)) and that "where a transaction results in an item that meets
the definition of an asset ….., that item should be recognised in the balance sheet....." (FRS 5
paragraph 20).
6.7
Whilst the freehold of the benefice house is vested in the incumbent for the time being, a diocese
through its Parsonages Board (in most dioceses the DBF is also the Diocesan Parsonages Board)
has the financial liabilities of insurance, repair and maintenance of benefice houses under the
Repair of Benefice Buildings Measure 1972. This often includes improvement and refurbishment
and the Board is a consenting party (and usually initiator) for replacement of a benefice house
under the Parsonages Measures 1938 and 1947. These functions are the similar to those undertaken
by the DBF for glebe and DBF corporate property, in that it manages the benefice property in a
comparable way to that in which it manages glebe or corporate housing. When a benefice property
is no longer required the DBF ultimately receives the net sale proceeds of the property, albeit
normally for restricted purposes, in a similar way to that in which it benefits from glebe or DBF
corporate property. In addition, there is no one entity with outright control of a benefice house
even when the benefice is occupied.
6.8
Benefice houses should therefore be recognised as functional fixed assets within the “benefice
houses fund” (generally an endowment fund) in the DBF financial statements in accordance with
the principles of FRS 5, because:
 The DBF carries both obligations and (reversionary) benefits of ownership;
 there is usually no distinction between the various categories of housing for the large insurance,
repair and maintenance element which appears under the ministry heading in the majority of
diocesan financial statements; and
 accountability and stewardship go hand in hand.
6.9
At the time this Guide is being drafted, legislation is being drafted in connection with proposals to
change clergy terms of service. Under these proposals, benefice houses will be vested on the date
of the first vacancy after the effective date of the legislation in the Diocesan Parsonages Board. In
most dioceses the Diocesan Board of Finance is also the Diocesan Parsonages Board. Thus
reference to FRS 5 to require the recognition of such houses in DBF financial statements will in
time no longer be necessary for the majority of dioceses. Notwithstanding this, where benefice
houses are not vested in the DBF (because the DBF is not the same as the DPB, or because there
has not been a vacancy to trigger the revesting in the DBF), those houses should still be recognised
in DBF financial statements, since the DBF will continue to carry all the risks and (the ultimate)
rewards of ownership.
Glebe properties
6.10 Diocesan glebe property is vested in the DBF under the Endowments and Glebe Measure 1976. The
DBF has a duty to hold and manage glebe properties for the benefit of the Diocesan Stipends Fund,
i.e. to generate income towards the payment of clergy stipends. Such properties can be held either as
functional fixed assets for housing clergy/licensed lay workers or for the purposes of producing
Diocesan Annual Report and Financial Statements Guide - 46
income for clergy stipends, in which case they should be classified as investment properties. In the
majority of cases houses transferred from benefice ownership to diocesan glebe by way of a
pastoral scheme are likely to be required as functional fixed assets for housing team vicars (in a
team ministry) and/or other ministers licensed to the benefice.
6.11 Glebe properties should therefore be recognised either as functional fixed assets or as investment
assets within the Diocesan Stipends Fund Capital Account fund (an expendable endowment fund)
in the DBF financial statements.
DBF trust properties
6.12 DBFs often have restricted or endowment funds arising from special appeals (e.g. an appeal to
create a fund to provide retired clergy housing), donations and bequests, or special trusts. Where
the assets of such funds include properties, these should be recognised in the DBF financial
statements according to the principles set out later in this chapter.
DBF corporate properties
6.13 DBF corporate property covers all other properties which have been purchased with DBF funds,
transferred into DBF corporate ownership by pastoral scheme or donated or bequeathed for the
unrestricted purposes of the DBF. This category may include houses for suffragan bishops,
archdeacons, assistant staff, sector ministers and others.
6.14 Houses may be owned as a result of donations, including grants (in whole or part) from the Church
Commissioners or other bodies and individuals. The ownership of such properties may be
determined by any restrictions applied to the grant.
6.15 A DBF may purchase houses with the assistance of value-linked loans or other loans. In the case of
houses purchased with value-linked loans from the Church Commissioners (for deserted spouses or
on behalf of parishes for curates) the diocese is responsible for both interest and principal
regardless of any rental or re-mortgage arrangement it makes with the relevant individual or parish
(see also section 9.9).
6.16 In general all DBF corporate properties should be recognised in the DBF financial statements.
Custodian trustee properties
6.17 Under the Parochial Church Councils (Powers) Measure 1956 PCC land and buildings (and any
PCC assets held on permanent trust) must be vested in the DBF as Diocesan Authority, which is
akin to the DBF being custodian trustee. In such cases it is the appropriate PCC, and not the DBF,
which carries the benefits and obligations of ownership, including the obligations to repay loans.
Similarly, the DBF may be custodian trustee of properties under the Incumbents and
Churchwardens (Trusts) Measure 1964, where the same principle applies. Such properties should
not be recognised in the DBF financial statements, but should be covered by disclosure in the
Annual Report (see SORP 2005 para 59).
6.18 Some assistant staff houses owned by PCCs, but vested in the DBF in accordance with the above,
may have been purchased with the help of a value-linked loan from the Church Commissioners,
such that the equity in the house is shared between the PCC and the Commissioners. These loans
are structured such that the Commissioners lend to the DBF, and the DBF lends on exactly similar
Diocesan Annual Report and Financial Statements Guide - 47
terms to the appropriate PCC. In these cases, since the DBF has no beneficial equity in the house
concerned, no fixed asset should be recognised in the DBF financial statements. (However, the loan
to the DBF from the Church Commissioners, and the loan from the DBF to the PCC should both be
recognised in the DBF financial statements – para 9.9).
Heritage properties
6.19 Heritage assets are those of historical, artistic or scientific importance that are held to advance
preservation and conservation objectives of the charity owning them. The only DBF properties
likely to fall within this definition are redundant churches, discussed below. FRS 15 requires that
all tangible fixed assets should be capitalised in the balance sheet. However, heritage properties do
not necessarily have to be recognised in DBF financial statements if they were acquired prior to
2000 and not capitalised by then, and either a) reliable cost information is not available and
conventional valuation approaches lack sufficient reliability, or b) the cost of providing the
information outweighs the benefit derived by users of the financial statements in assessing the
trustees’ stewardship of these assets.
6.20 It should be noted that the previous non-capitalisation ground of the legal or operational
inalienability of an asset under the 1995 SORP is in itself, since SORP 2000, no longer relevant to
the recognition of assets by a charity, and that SORP 2005 now distinguishes only heritage assets.
Diocesan Bishop’s House
6.21 Currently the Diocesan Bishop’s house is vested in the Church Commissioners, and the DBF has
no responsibility for its maintenance or improvement, or liabilities arising from the Bishop’s
occupation thereof. Therefore this property should not be recognised in the DBF financial
statements.
Redundant church buildings
6.22 It may be that a redundant church building in question is used by the DBF for administrative or
fund generating purposes, for example as diocesan offices, a visitor centre or shop, or as an
investment. In such cases it should be capitalised at the date of redundancy within the appropriate
category. However, in the majority of cases the DBF will be seeking an alternative use and the
disposal of the building.
6.23 The building should be capitalised at the point at which it is vested in the DBF though its value
may be nominal or nil depending on the circumstances. It may be some years before a use is found
for the building and disposal secured (in some cases 20 years or more), so a realistic assessment of
the situation will have to be made at the beginning.
6.24 From an accounting point of view the situation is further complicated by the fact that the use of the
net proceeds of sale of a redundant church building is determined by the section of the Pastoral
Measure under which the redundancy is effected:

If it is a straightforward redundancy and entry into the waiting period to seek an alternative use
under section 28, one third of the net proceeds of sale goes to the Church Commissioners for
the Churches Conservation Trust and two thirds are credited to the Diocesan Pastoral Account.
It is recommended that of the capitalised cost, a creditor for one third should be created to
represent the proportion which will eventually go the Churches Conservation Trust.
Diocesan Annual Report and Financial Statements Guide - 48

If redundancy is effected under section 46 then the net proceeds of sale will be applied to a new
worship centre for the parish in question and any surplus split as for section 28 cases. It is
recommended that as most situations would not result in a surplus after meeting the costs of a
new worship centre a creditor be created for the whole capitalised cost, being a future grant to
the parish.

For section 47 cases the proceeds may be split in accordance with section 28 or if the building
is transferred directly into the Churches Conservation Trust there will be no sale proceeds at
all. The accounting treatment will depend on the situation and will probably be a mixture of the
above.
6.25 During the “waiting period” for seeking a new use the DBF is responsible for keeping a redundant
church building in a reasonable condition and insured as set out in section 49 (2) of the Pastoral
Measure 1983. Depending on the area in which the church is situated and the problems of
vandalism these costs cannot be quantifiable from one year to the next but are met from the DPA at
the time incurred. In addition, the DBF may have incurred costs while the pastoral scheme was out
for consultation and prior to it becoming effective.
6.26 A DBF can apply to the Church Commissioners for assistance towards the costs of maintaining a
redundant church building during the “waiting period” and receive up to 50% of certain agreed
expenditure from the Redundant Churches Temporary Maintenance Account (RCTMA). This
assistance from the Commissioners has to be repaid on the disposal of the building provided a loss
has not been made in which case the Commissioners contribution is then regarded as a grant. It is
recommended that RCTMA receipts should be classified as loans on receipt set against the DPA
and converted to grant in the year of disposal if that is applicable.
6.27 The Pastoral Measure provides for the costs of maintaining a redundant church during the “waiting
period” to be recouped from the proceeds of sale and credited to the DPA (see section 78 (2)
Pastoral Measure 1983). In a number of situations there is a distinct possibility that the
maintenance costs over the years may have exceeded the net sale proceeds (after professional and
legal expenses have been met). In theses cases the total net proceeds of sale will therefore be due to
the DBF irrespective of the section under the Measure under which the redundancy was effected.
This situation is determined in conjunction with the Church Commissioners who require the DBF
to account for the costs of each Pastoral Scheme in order to apply the appropriate division of sale
proceeds. It is suggested that the costs incurred over the years of the “waiting period” should be
classified as restricted grant when received on disposal of the building.
6.28 Therefore the anticipated “waiting period”, the possible extent of vandalism and the on-going
maintenance costs will be factors that need to be borne in mind when the initial accounting
treatment is decided and a valuation is set. However, a nil-value or nominal value basis is not
appropriate for all cases since it undermines the requirement for disclosure in the first place. Each
building should be looked at individually and an appropriate decision made.
6.29 The overall policy in respect of redundant churches should be clearly disclosed by way of note in
accordance with the requirements of the SORP.
Church schools, teachers/caretakers’ houses and other school property
6.30 When a Church school is closed, the remaining property and assets of the school will continue in
Diocesan Annual Report and Financial Statements Guide - 49
the trusteeship of the school trustees, on trusts which may be educational, ecclesiastical or mixed.
Church school trustee bodies have historically varied in composition from one Church school to the
next; sometimes the incumbent and churchwardens have been trustees, but not always. In modern
church schools, the trustees tend to be the Diocesan Trustees or the Diocesan Board of Education,
where either of these bodies is an incorporated body, or, failing this, the Diocesan Board of
Finance.
6.31 In the period between closure of a school and a determination order from the Secretary of State for
Education, the trustees may have expenses to bear in connection with the closed school property
and assets: in practice the closed school trustees rarely have funds from which such expenses can
be borne, and the Diocesan Board of Education often bears such costs, in the knowledge that any
future determination order is likely to vest the assets (or their net sale proceeds) in the diocese, thus
enabling reimbursement. Such expenses should be written off, usually against uniform statutory
trust funds, until the determination order has been obtained. Where closed school assets have been
sold before a determination order has been obtained, it is common for the Diocesan Board of
Education or Finance (or occasionally the solicitor acting for the trustees) to hold the net proceeds
pending the issue of such an order. It would then be appropriate for any pre-sale expenses of the
diocese, relating to the assets sold, to be reimbursed from these proceeds. Such proceeds should be
held as a creditor, pending the issue of a determination order. Where considerable sums are held in
this way, the balance sheet should have an appropriate note disclosing the sums involved, their
nature and the number of closed schools that they relate to.
6.32 In time the Diocesan Board of Education will normally apply for a determination order by the
Secretary of State for Education under section 554 of the Education Act 1996 (previously known as
schemes under section 86 of the Education Act 1944, or section 2 of the Education Act 1976),
vesting the assets in the Diocesan Board of Education, where this is an incorporated body, or
failing this the Diocesan Board of Finance. The order will normally vest these assets for use in
accordance with uniform statutory trusts, which have been adopted by the Diocesan Synod; such
uniform statutory trusts allow the use of capital and income of the funds concerned for use in
connection with Church schools in the diocese. The issue of such an order will therefore crystallise
a receipt of funds into the appropriate restricted fund. Failing this, the trustees will normally need
to obtain a Charity Commission scheme to re-designate the use of the proceeds, and will need to
consult the DBE as required by the DBE Measure.
6.33 The untidy issue not so far covered concerns closed school assets held by either the DBE or DBF as
trustee before a determination order has been obtained. Legally these comprise a restricted fund for
each individual school, the purposes of which will be found in the trust deed setting up the school,
and the accounting treatment should reflect this. These may include a former teacher’s house or the
equivalent sale proceeds and such assets will normally be subject to a section 554 application along
with the school site or its proceeds.
6.34 Where the DBE or DBF is trustee of the buildings of a school which is still open, the risks and
rewards of ownership of the buildings may be construed as belonging to the school governors under
FRS5. Therefore they should not be reflected in either the DBE or DBF financial statements.
Valuation
6.35 In seeking to value benefice and other houses, there is understandable reluctance on the part of
dioceses to incur the costs of periodic professional valuations, which are not mandatory for
Diocesan Annual Report and Financial Statements Guide - 50
charities. But the notes to the accounts have to disclose the name and qualification of the person
making the valuation (member of staff, director/trustee or external valuer), the basis of valuation,
the historical cost less depreciation (if records are available), the date of the last valuation (which
must be at least every five years) and any material changes during the accounting period (SORP
2005 para 277). Where the DBF has a policy of revaluation (gift-valuations do not count for this
purpose), the carrying amount of the asset should be kept up to date in this way, by reference to its
current value - defined as market value for the existing use of the asset or (for hard-to-value assets)
“depreciated replacement cost”, and even where carried at cost the net book value should never
exceed the asset’s “recoverable amount”: i.e. the higher of “value in use” in terms of expected
cashflows or “service potential” until disposed of (including its residual value at prices ruling at the
time of its acquisition) and its “net realisable value” for immediate sale. For any revaluation policy
under FRS15 to be valid, all assets in the same class have to be revalued.
6.36 Alternative valuation methods have been reviewed, and the following observations are relevant:

A cost basis (including any pre-FRS15 valuations ‘frozen’ in 2000 under FRS15’s transitional
rules) may be appropriate where a diocese's housing stock is mostly modern. In practice this
may be applicable to only a small proportion of houses. Care will be needed to distinguish
between maintenance expenditure which should not be capitalised and genuine improvements
to houses which should be capitalised above a reasonable threshold level of cost. In some
instances, it may be recognised that the resulting valuation would need to be impaired prior to
the disposal of the property as the improvements do not enhance the market value of the
property significantly due to other factors. But whilst the property remains in use the original
pre-FRS15 valuation plus the subsequent capitalised improvements less depreciation provision
may still not exceed the currently estimated value in use, so that there will be no need for any
impairment write-down by way of additional depreciation. For example, a former parsonage
house in an urban priority situation which is upgraded for use by an archdeacon or bishop. If
there is significant difference between net book value and a (higher) market value the notes to
the accounts should disclose this. Reference should also be made to SORP paras 190 to 196.
Cost figures (including gift-valuations and frozen pre-FRS15 valuations) are historical and so
should not be restated, e.g. to reflect movements in an appropriate house price index (such as
that used to revalue value-linked loans) – other than under an FRS15-compliant revaluation
policy covering the entire class of asset as above.

The mid point of the applicable council tax banding, index-adjusted for house price movements
(see below), is an acceptable substitute for revaluation to current market prices or to an
‘indexed cost’ figure as described above; although in some dioceses property values of larger,
well-sited houses may be significantly in excess of the top council tax band, in other dioceses
the market value of a property may be significantly less than the mid point of its council tax
band.. The council tax bands currently in use were established in 1991 and reflected market
valuations in that year, soon a slump in the property market. The band figures should therefore
be restated periodically (preferably annually) to reflect movements in an appropriate house
price index (such as that used to revalue value-linked loans).

Insured value for the cost of rebuilding is a possible, if less reliable, revaluation basis, and the
Ecclesiastical Insurance Group is well-placed to assist in this area, including the provision of
prior year comparatives. It should be noted that the insured value will normally represent the
site-clearance and total rebuilding cost (disregarding any dilapidations). Thus it excludes the
value of the land, and so may differ considerably from full market value for older or unusual
Diocesan Annual Report and Financial Statements Guide - 51
houses in an upmarket area and for any house with more land than is now usual for a new one
of comparable size.

A discount for non-vacant possession is not considered appropriate since value only crystallises
in the event of a sale, which would not occur without vacant possession.

A nil-value or nominal value basis is not appropriate since it undermines the requirement to
disclose in the first place – except where onerous repair obligations negate the property’s value
(e.g. extensive underpinning of a building’s foundations due to subsidence).
6.37 Houses which are subject to value linked loans should be revalued annually as a class and in line
with the basis adopted by the Church Commissioners. This is to apply the movement in the relevant
Nationwide housing index since the purchase date to the purchase price and deduct a percentage
(currently 15%) from the result. The Church Commissioners revalue both the house and the value
linked loan on this basis and can supply details to each diocese at the year end.
Investment Properties
6.38 Glebe investment and other investment property, in line with the general rule of current open
market value for such assets, should be treated in accordance with the requirements of the SORP
paras 295 to 312. The SORP envisages valuations at least every five years unless advice received
indicates that there is likely to have been material movement between valuations at which point a
revaluation will have to be undertaken. The notes should describe the name and qualification of the
valuer, the basis, etc. Remember that glebe assets may be either functional or investment in nature.
6.39 A simple example of a workpaper which can be used to revalue investment properties is attached as
Appendix XI. The workpaper lists the properties by internal reference number which is typically
used for property management purposes within the diocesan office. It then records the book cost
and the area in which the property is located and for which quarterly indices of house price
movements are available. The workpaper shows the relevant indices supplied by the Nationwide
Building Society.
Impairment reviews (FRS 11) (SORP 2005 para 267 – 278)
6.40 Impairment of a fixed asset occurs when its net book value (at cost or frozen valuation - current
value clearly subsumes any impairment) is higher than its recoverable amount. If this is the case
then under FRS 11 the asset is said to be impaired and should be written down to its recoverable
amount, which is the higher of the net realisable value and its value in use. Impairment reviews
only need to be carried out where there is some indication that the recoverable amount of an asset is
below its net book value unless:

an annual impairment review is required as depreciation is not material; or

the property in question has an unexpired life in excess of 50 years.
6.41 For most dioceses the impact of FRS 11 will depend on the diocesan decisions taken regarding
depreciation and FRS 15 and whenever events or changes as described in SORP para 226 (relatedparty transactions) occur the impact could be significant for particular properties.
6.42 If an annual impairment review is required the Board will have to decide how this is going to be
undertaken and how appropriate records are to be maintained. A possible suggestion is:
Diocesan Annual Report and Financial Statements Guide - 52
A thorough review of each property at the time of the quinquennial inspection including
photographic evidence (internally and externally); plus an annual review of all property based on:
a) a comparison with property of similar age and in a similar locality paying specific attention to
physical deterioration of property structure, amount of repairs/improvements undertaken
during the year and changes to the surrounding area; and
b) consideration of whether or not the property is likely to be replaced/disposed of in the near
future.
6.43 The work paper in Appendix XII which illustrates annual revaluations by reference to quarterly
indices of house price movements can be adopted to record the annual review in the light of the
specific circumstances of the diocese. Suppose that the properties concerned are capitalised at cost
with subsequent improvements also capitalised and routine maintenance expensed. The work paper
could be amended to include improvements each year, thereby giving net book value. An estimate
of recoverable amount (net realisable value) could be gained by applying the relevant quarterly
index to the figure for cost / subsequent improvements. If the recoverable amount is higher than
the net book value, the asset has not become impaired and no further action need be taken. This is
likely to be so in the case of diocesan properties unless property values in the local area have fallen
significantly.
6.44 Any impairment should be regarded as additional depreciation and the revised carrying amount of
the asset in question depreciated over its remaining useful life. (This can complicate calculations
based on a ‘straight line’ depreciation method, as distinct from the reducing balance method.)
Depreciation of Tangible Fixed Assets (FRS 15) [SORP 2005 para 258 – 261]
6.45 FRS 15 requires that the depreciation of all tangible fixed assets other than investment properties is
recognised as an annual charge in the SOFA and shown in the balance sheet. For dioceses this
means freehold and leasehold property held in trust for the diocese by the DBF as managing
trustee, property vested in the Board in that capacity by Scheme or Measure (former parsonages
transferred to glebe for clerical use and redundant churches in the “waiting period”), benefice
houses (if shown in the balance sheet as recommended above) plus plant, machinery, fixtures and
fittings etc.
6.46 As with all assets the properties are to be depreciated over their useful life and on the basis of
cost/valuation less any residual value based on prices ruling at the time of the asset’s
acquisition/renovation. The only exception to charging depreciation is that the depreciation charge
and the accumulated depreciation are not material. This implies either:
 a long unexpired life (due to a policy and practice of regular structural maintenance and a policy
and practice of disposing of similar properties well before the end of their useful life); and/or
 a high residual value (based on prices at the time of receipt or subsequent valuation, the residual
value of the asset is not materially different from the carrying amount of the asset).
and, in addition, the assets have been subject to an annual impairment review in accordance with
FRS 11.
6.47 Where different parts of a property have substantially different useful lives then each component
should be accounted for as a separate entity.
Diocesan Annual Report and Financial Statements Guide - 53
6.48 Any depreciation charge needs to be applied consistently to “classes” of assets and the useful
economic life (UEL) of each class of asset needs to be determined (see below). The depreciation
charge can be set against the reserve to which the class of asset belongs.
6.49 The useful economic lives of the property concerned will depend on the individual properties in
each class and the surrounding area. For instance, the UEL of a property in an UPA parish in an
urban diocese may be significantly different from the UEL of a property situated in a rural parish.
Some suggestions are:
Leaseholds
Freehold
Benefice, glebe or corporate housing
Redundant churches
over term of unexpired lease
40 - 50 years
50 - 150 years
see para 7.22
6.50 Because the conditions set out in paragraph 6.46 will have been satisfied in most instances of
properties recognised in DBF financial statements, this Guide recommends no depreciation of such
properties. The accounting policies will then need to demonstrate clearly that the requirements of
paragraphs 89/91 of FRS 15 have been satisfied.
Mixed Use of Property as Fixed Assets (Functional and Investment)
6.51 Paragraph 257 of the SORP recognises that land and buildings can be held for mixed purposes i.e.
partly as functional property and partly investment property.
6.52 Functional property is defined as those buildings held for the charity’s own use or otherwise used
for charitable purposes. This can also encompass buildings used in the running and administration
of the charity and it may be also that some inalienable and historic assets (q.v) are used in
functional activities.
6.53 Investment property is defined in Appendix 1 of the SORP as: an interest in land and/or buildings
held primarily for the purpose of producing an income for the charity, any rental income being
negotiated at arm’s length. Investment property will not include any land acquired with a view to
sell at a profit. (This applies whether or not there has been any development). Any property which
is owned and occupied by a charity for carrying out its own purposes is not investment property.
6.54 How mixed purpose buildings are capitalised depends upon the primary purpose of holding the
asset and the extent to which they are separable. The primary purpose will often be clearly
identifiable but where there is mixed use then the following rules apply:
 Assets held mainly for charity use but where a part is leased at a commercial rent are functional
if that lease is a small part of the asset or a short term lease;
 Assets held primarily for investment use but where a small part is functional should be
investment assets;
 Assets that have clear and distinguishable parts held for different purposes i.e. part investment
and part functional should be split in the balance sheet.
6.55 Whether mixed use buildings are capitalised may well depend on the nature of the building and the
source of original funding. Some practical examples to illustrate:
Diocesan Annual Report and Financial Statements Guide - 54
 A parsonage house has been sub-divided and part apportioned to glebe. The parsonage is a
functional asset and shown within the expendable endowment funds. The glebe flats attached
are let at commercial rents and would be disclosed as investment assets within a restricted fund.
An overall valuation for the whole building was £540,000 shown as £332,000 functional asset
and £208,000 investment asset.
 An office building acquired partly with unrestricted funds and partly glebe and where the whole
building is let commercially shows partly in unrestricted investment property and part in glebe
restricted funds again as an investment property. The original cost was £832,000 from
unrestricted funds which at current values is disclosed as £2.7m within unrestricted investment
property and £215,000 from glebe which at current values is disclosed as £0.7m within
restricted glebe investment property.
 A building used for community health purposes was acquired partly from general fund cash and
partly by sinking permanent endowment capital into it. The building is leased to medical
practices and community health organisations. This is an investment property shown partly
within general fund assets and partly within endowment assets. The overall cost was £1.3m
which was funded £0.7m general fund assets and £0.6m endowment fund assets.
6.56 Disclosure: The net book value of freehold and leasehold properties which are fixed assets held for
functional use (either by the DBF or otherwise for charitable uses) as at the end of a year should be
separately disclosed. Similarly there needs to be separate disclosure of property fixed assets held
for investment purposes. Any accounts note explaining the impact on free reserves of a material
increase in net book value of the former should explain whether and to what extent this was
financed by corporate resources as distinct from endowments and/or restricted income funds –
SORP paragraph 243.
Diocesan Annual Report and Financial Statements Guide - 55
7.
Accounts governed by Measure
Factual Description
Diocesan Pastoral Account
7.1
In accordance with Sections 77 and 78 of the Pastoral Measure 1983 and as amended by
subsequent legislation, each Diocesan Board of Finance is to hold an account for the diocese called
the Diocesan Pastoral Account (DPA). This account receives monies in conjunction with the
Church Commissioners' Pastoral and Redundant Churches department. The account receives the
sale proceeds of churches and parsonages, which have become redundant under pastoral
reorganisation, when it is specified that they should be paid into the account. In addition, such other
monies as the Bishop and DBF determine after consultation with the Church Commissioners
should be credited to this account.
7.2
The purposes for which the account may be used are laid down in Section 78 of the Pastoral
Measure 1983 and comprise:
a) costs incurred for the purposes of the Measure or any scheme or order made by the Measure
except the whole or part of any salaries or wages of any persons in the regular employment of
the diocese;
b) costs of disposing of or maintaining houses and churches vested in the DBF or Commissioners
by the Measure; if a DBF is satisfied that monies to the credit of the DPA are not required or
likely to be required for 7.2 a) above, it may apply those monies by way of grant or loan;
a. to the provision, restoration, improvement or repair of churches and parsonage houses
in the diocese, including the repair of any redundant building vested in the board
pending a redundancy scheme, or to other purposes of the diocese or any benefice or
parish in the diocese;
b. for the benefit of another diocese; or
c. transfer monies to DSF Capital or Income (which cannot be reversed).
Whilst the permissible uses of this fund appear extensive the uses of the fund are restricted by
Measure. The Charity Commission has confirmed that the DPA should be regarded as a restricted
fund for the purpose of diocesan financial statements. If a diocese can prove beyond reasonable
doubt that paragraphs 1 and 2 of section 78 will no longer apply to its particular circumstances then
the fund could be moved to unrestricted use though perhaps designated.
The DPA is held by the DBF, so it is essential the DPA is included in the SOFA.
Diocesan Stipends’ Fund Capital Account (DSF Capital)
7.3
The account is governed by the Diocesan Stipends Fund Measure 1953 as amended by Sections 9,
35 (1) and (2), 47 (4) and Schedule 8 of the Endowments & Glebe Measure 1976, Section 13 (1)
and Schedule 5 para 1(a) and (b) of the National Institutions Measure 1998, Part III para 44 of the
Trustee Act 2000 and Section 17 (1) and Schedule 3 para 6,7 and 8 of the Miscellaneous Provisions
Measure 1992. With the amendments made by the Miscellaneous Provisions Measure 1992 this
fund can now be considered “expendable” endowment rather than “permanent” endowment.
Diocesan Annual Report and Financial Statements Guide - 56
7.4
Credits come primarily from the sale of glebe; the sale of investments purchased from the account;
the transfer of parsonage sale monies; occasional gifts/bequests not expressly directed or declared
to be applicable as income; donations expressly directed or declared to be capital under the
provisions of a pastoral scheme or any other scheme having effect as though it were such a scheme;
transfers from the DSF Income account; and any other money or property for the credit of the fund
which the DBF and the Bishop determine is applicable as capital. This account is primarily
available to produce income for stipends (see below for the Income Account). But subject to any
charges imposed by scheme or order the fund may, at the discretion of the DBF with the
concurrence of the bishop, be applied to:a) acquiring new glebe property;
b) investment in a subsidiary of the board under a scheme made by Section 19A of the
Endowments and Glebe Measure 1976;
c) developing (including division or demolition), improving and protecting amenities of glebe;
d) participation in any collective investment scheme operated for the purposes of this paragraph
by the Church Commissioners
e) investment in any investment fund or deposit fund constituted under the Church Funds
Investment Measure 1958
f) investment in any investments under the general powers of investment in section 3 of the
Trustees Act 2000
g) discharging of capital levies (e.g. road charges) on glebe;
h) discharging loans (principal and interest) on glebe;
i)
the provision or improvement of parsonage houses; and
j)
discharging any loans made by the Church Commissioners under the Endowments and Glebe
Measure 1976.
Diocesan Stipends Fund Income Account (DSF Income)
7.5
The DSF Income account is governed by the Diocesan Stipends’ Funds Measure 1953 as amended.
The use of the income is restricted by the Measure, but where the fund is fully expended within the
year (as it normally is, with any overdraft on the account attracting an interest charge from the
Church Commissioners), these legal restrictions will have been satisfied. In practice, both the
year’s income and its expenditure may then be included in the unrestricted column of the SOFA,
thus avoiding yet another entry in the inter-fund transfers section of the SOFA.
7.6
Monies which are legally required to be paid into it are:
a) any legacy expressly directed or declared to be applicable as income or donation not directed or
declared to be capital under the provisions of a pastoral scheme or any other scheme having
effect as though it were such a scheme;
b) net income derived from cash and investments (including glebe) representing the diocesan
stipends fund capital account (except that glebe mineral income is to be credited to the capital
account);
c) sequestration balances;
Diocesan Annual Report and Financial Statements Guide - 57
d) assigned parochial fees, if so stated in the deed of assignment;
e) certain income from trusts, depending on the terms of the trust;
f) the Church Commissioners' curacy allocation, deriving from section 8 of the Endowments and
Glebe Measure;
g) certain charges on the Church Commissioners' income deriving from orders in council under
various measures;
h) any other money or property for the credit of the fund which the DBF and the Bishop
determine is applicable as income.
7.7
Any other income credited to this account, such as parish share/quota (diocesan unrestricted
general funds) and/or the Church Commissioners' selective allocations (unrestricted grant, formerly
restricted), would need to be shown as a transfer from another fund into this restricted fund unless
the alternative SOFA treatment recommended at 7.5 above is followed.
7.8
Subject to any charges imposed by scheme or order the monies credited to DSF Income accounts
shall be applied to:
a) provide or augment stipends of incumbents, assistant curates and others engaged in the cure of
souls in the diocese
b) meet expenses incurred in repairing and maintaining parsonage houses
c) paying secondary Class I contributions under section 6 of the Social Security Contributions and
Benefits Act 1992 in respect of ministers not employed under a contract of service
d) defray sequestrators' expenses.
7.9
In using the DSF Income account for the purposes expressed in 7.8 a) above, the person authorised
by the DBF and Bishop to issue directions shall ensure that the application is consistent with the
national recommendations on the application of these funds.
7.10 Although the monies required by law to be credited to the DSF Income account are restricted in
nature until duly applied, in practice these are supplemented by unrestricted monies which form the
majority of monies credited to the account, the total of which is applied to the required purposes,
which form a primary purpose of the DBF. This Guide recommends that any immaterial asset
balance remaining in the account at the year-end, if transitory, may be considered as if unrestricted,
and all the income and expenditure of the DSF Income account may therefore be accounted for
within unrestricted funds. For the purposes of transparency the DSF Income account may be
treated as a designated fund within unrestricted funds. An accounting policy note should clarify the
accounting treatment followed.
Parsonage Building Funds
7.11 These are funds held by the Church Commissioners for a specific benefice, i.e. following the sale
of a parsonage house. The funds concerned cannot normally be released unless used for the
benefice concerned or until an appropriate pastoral scheme has been effected. For example, a
parsonage house has been sold because it is surplus to requirements but a pastoral scheme uniting
the benefice concerned with a neighbouring benefice or benefices has not yet been processed. The
funds cannot normally be released until the pastoral scheme is effected as theoretically every
Diocesan Annual Report and Financial Statements Guide - 58
benefice must have a parsonage house and the funds concerned should not be credited to either the
DPA or DSF Capital accounts until the benefice concerned ceases to exist. However, there is now a
provision in the Parsonages Measure whereby such funds can be transferred to diocesan accounts
without replacing/providing a house or undertaking pastoral reorganisation. The local interested
parties have a right of representation and the Church Commissioners take the final decision on any
representations.
7.12 Any account held by the Church Commissioners for the benefit of a diocese receives or suffers
interest on individual diocesan daily balances at the Variable Credit or Debit Rate. This is usually
equivalent to the CBF deposit rate (for VCR) + 2% (for VDR).
Accounting Requirements
7.13 FRS 5 states that "Assets are, broadly, rights or other access to economic benefits controlled by an
entity" (FRS 5 summary paragraph (e)) and that "where a transaction results in an item that meets
the definition of an asset ..., that item should be recognised in the balance sheet ..." (FRS 5
paragraph 20).
Application to DFS
7.14 The various amendments to the Diocesan Stipends Fund Measure 1953 and the Pastoral Measure
1983 have devolved responsibility for these accounts to the individual dioceses. There can be no
doubt that the role of the National Church Institutions is purely regulatory supervision. The benefits
arising from the assets belong to dioceses and should be included, together with other assets, in
diocesan financial statements, i.e. the entity accounts of the DBF.
7.15 Assets, houses and other property/land, which have been purchased out of DPA or DSF Capital
funds are likely to be held as glebe or DBF (diocesan corporate) property. These should be
included in the balance sheet under the appropriate fund heading.
7.16 The assets and account balances, other than DSF income, may represent income-bearing
investments and should be included, if appropriate, under that heading, with an explanation of their
nature.
Diocesan Annual Report and Financial Statements Guide - 59
8.
Provision for Pensions and other Retirement Benefits
Factual Description
8.1
Clergy pensions are provided for by two different sources. The Church Commissioners are
responsible for pensions arising from service up until 31 December 1997. No charge for that past
service pension obligation is made on the dioceses. But DBF’s are responsible for clergy pensions
arising from service since 1 January 1998 and this is governed by the Pensions Measure 1997.
8.2
Contribution rates will vary according to actuarial review, normally undertaken every three years.
The last valuation was carried out as at 31 December 2003 and the contribution rate was increased
to 33.8% of the previous year’s national minimum stipend, with effect from 1 April 2005.
The next formal valuation will be undertaken as at 31 December 2006. However, based on interim
advice from the actuary that insufficient funds were coming into the scheme to meet future pension
obligations, the contribution rate will increase, on an interim basis, to 39.8% with effect from 1
January 2007. The rate payable in the longer term will be reviewed in the light of the next formal
valuation of the scheme and any changes to the benefits structure currently under review.
Accounting Requirements
8.3
FRS 17 has superseded SSAP 24 and is fully applicable in respect of 2005 and subsequent financial
years. This followed the revision in 1998 of IAS 19 (Employee Benefits) by the International
Accounting Standards Committee. The revision represents a radical change from past accounting
practice and is perhaps the most significant change that dioceses, like other bodies, will have to
contend with. The standard addresses the accounting needed for all the payments that the employer
makes or is committed to make to a pension fund or other staff retirement benefit arrangement of
any kind and the resulting notional assets and liabilities that may arise in the company’s financial
statements.
8.4
Under the standard, the accounting treatment for defined contribution schemes (money purchase)
has not changed. In such schemes the employer contracts to pay specific contributions to an
employee’s pension fund, usually based on a percentage of salary. The amount the employee will
receive in the future as a pension will depend on the investment performance of the particular
fund’s assets. The employer has no other ongoing liability. The cost of providing the pension will
be charged to staff costs in the annual accounts as the contributions payable.
8.5
The other type of employer-funded pension scheme (apart from ‘stakeholder’ pensions) is the
defined benefit scheme (final salary) and it is in relation to these schemes that the accounting
treatment has changed significantly. Such schemes are potentially more complicated to operate and
account for. Under such a scheme the employer contracts to finance a pension which will provide a
certain amount, for example, one/sixtieth of final salary multiplied by number of years’ service
over a given period of time. In such schemes the employer has an open-ended liability. A defined
benefit scheme requires periodic actuarial review to advise the employer of any adjustments needed
to the annual rates of contributions to be made. The higher paid an employee is on retirement and
the longer the length of service the greater the employee’s pension entitlement will be and thus the
greater the liability to be met out of the fund. Actuarial reviews are complicated as future salary
levels and investment returns can only be estimated and at the point of any review the fund could
Diocesan Annual Report and Financial Statements Guide - 60
appear to be in deficit or surplus depending on the various factors involved in the method of
calculation required under the standard.
8.6
Because of the complexities of FRS 17 and pension schemes in general it did not become fully
operational until 1 January 2005 (extended from June 2003 to meet the needs of the standardsetting bodies) though early full implementation was recommended. Dioceses need to co-ordinate
their approach with the Church of England Pensions Board and any other provider, e.g. EIG.
8.7
The new standard provides rules for valuing pension fund assets and liabilities:

Assets should be measured at their fair value (mid –point market value for quoted securities);

Liabilities should be measured using the projected unit method and discounted at a rate that
reflects the time value of money i.e. an AA corporate bond rate;

Actuarial valuations have to be undertaken at consistent intervals not exceeding three years and
should be updated at each balance sheet date;

The calculated pension scheme surplus or deficit is recognised in full in the balance sheet as an
addendum below the line for net assets, drawing a new total for the figure of net assets
including pension-funding asset or liability;

The movement in the scheme surplus/deficit is analysed into:
1) Current service cost and past service cost (within operating surplus/deficit, which means
within staff costs in the SOFA);
2) The interest cost and expected return on assets (within finance costs – which means
under the “costs of generating funds” heading of the SOFA or else within the
incoming resources section as “other income” if the figure is negative);
3) “actuarial gains and losses” which arise when the actuarial assumptions made at the last
valuation do not coincide with the actual over the given period of time. Actuarial gains and
losses on pension-funding have to be recognised immediately, i.e. in the year they occur,
on a separate line in the total recognised gains and losses section of the SOFA.
8.8
But FRS 17 differs from the International Accounting Standards (IAS) 19 which requires
“actuarial gains and losses” to be shown in the profit and loss account to the extent that they
exceed 10% of gross assets or gross liabilities in the scheme. In practice this means that where
they amount to less than 10% such gains and losses are not shown as part of corporate reserves in
the balance sheet, having been netted off against the pension fund assets and liabilities. Whilst the
new standards may provide a greater degree of consistency and transparency, the Working Group
has concerns regarding:

the short term approach to valuation;

the inconsistency of taking actuarial gains and losses to (corporate) reserves (although unless
the pension reserve movements are shown in a separate column this has no visible effect on the
SOFA, which includes all reserves movements, including those on the pension reserve,
disentangling a notional deficit on the pension reserve from the real free reserves for the policy
disclosure in the trustees’ annual report needs careful attention in line with the Charity
Commission’s website guidance on the subject – see 8.14);

the difference between FRS 17 and IAS 19 including the arbitrary 10% of IAS 19.
Diocesan Annual Report and Financial Statements Guide - 61
It was hoped these matters might be addressed by the Accounting Standards Board in due course.
Instead, subsequent changes made to the Companies Act to allow private companies to migrate
from UK to international accounting and financial reporting standards specifically exclude
charitable companies, which have thus been locked into UK standards and the SORP.
Application to DFS
8.9
Defined contribution schemes are operated by a number of dioceses in relation to lay members of
staff. But the Clergy Pension Scheme and the majority of pension schemes for diocesan lay staff
are defined benefit schemes. Many dioceses are members of the Church Workers Pension Fund in
respect of lay employees, but each diocese is classed as a separate employer, therefore in theory it
would appear that there could be no overall accounting treatment. However, detailed study of the
various aspects of the Pensions Measure 1997 and the Church Workers Pension Fund by the
Pensions Board’s actuaries indicates that both schemes should be treated as defined contribution
schemes for the purposes of DBF financial accounts rather than defined benefit schemes.
Dioceses who are not members of the Church Workers Pension Fund but have a defined benefit
scheme with some other provider will have clarified with their providers how they should account
for the scheme under FRS17 in readiness for its compulsory full implementation for 2005 onwards.
8.10 No provision should be made by dioceses for past service pensions for clergy which remain
payable by the Church Commissioners. But dioceses should disclose the position by way of note. A
possible disclosure may be as follows:

Descriptive - "Past service clergy pensions, for service up to 31 December 1997, are paid by
the Church Commissioners, at no cost to the diocese".
8.11 In respect of the (post 1997) funded scheme for clergy, it will be possible to deal with this by way
of disclosure as allowed by paragraph 9(b) of FRS 17. This is due to the fact that the scheme has
been constructed with a common contribution rate and not accrued to individual employers. The
Church of England Pensions Board’s suggested wording for the disclosure note, updated from the
original, would be as follows:
The [Employer] participates in the Church of England Funded Pensions Scheme.
The Church of England Funded Pensions Scheme is a defined benefit scheme but the
[Employer] is unable to identify its share of the underlying assets and liabilities each employer in that scheme pays a common contribution rate. The latest valuation
of the Scheme was carried out as at 31st December 2003, and the [Employer’s]
contribution rate increases from 29.5% to x% of pensionable stipends to x% from 1st
January 200x. [Insert figures obtained for estimated global surplus/deficit on Scheme
as at each year-end]
Under Financial Reporting Standard 17: “Retirement Benefits”, for schemes such as
the Church of England Funded Pensions Scheme, paragraph 9(b) of FRS 17 requires
the [Employer] to account for pension costs on the basis of contributions actually
payable to the Scheme in the year.
8.12 Dioceses which use the Church Workers Pension Fund have been circulated with a technical note
from the Pensions Board’s actuaries explaining the reasons why the disclosure route, as allowed by
paragraph 9 (b) of FRS 17, could be applied to the scheme. This stated that it was believed that
Diocesan Annual Report and Financial Statements Guide - 62
paragraph 9(b) applied because all employers shared the following risks:





mortality in retirement;
investment returns post retirement;
price inflation and pension increases post retirement;
mortality pre-retirement; and
incidence of ill health retirements.
(Other elements of risk are tracked between employers).
As a result, even though each employer’s contributions are affected by a surplus or deficit within
the defined benefits scheme, none of the employers is able to identify its share of the underlying
assets and liabilities in the scheme other than on an arbitrary basis. Therefore, the following
wording could provide a suitable disclosure statement:
“(Diocesan Board of Finance) participates in the Church of England Defined Benefits Scheme
(DBS), part of the Church Workers Pension Fund. At (date) the Board had (X) active members and
(Y) deferred pensioner members in the Fund. The (Board) is unable to identify its share of the
underlying assets and liabilities as each employer is exposed to actuarial risks associated with the
current and former employees of other, separately accountable reporting entities participating in the
DBS. A valuation of the Fund was last carried out as at 31 December 200x and the Board’s
contribution rate of x% reviewed. The rate was increased to y% from 1 January 200y and z% from
1 January 200z.”
Alternatively, where a diocese and its auditors decide to report on a different basis the Pensions
Board and its actuaries would provide as much information as possible, the costs to be borne by the
diocese(s) concerned.
8.13 Dioceses which operate defined benefit schemes for their lay employees, which are not provided by
the Church of England Pensions Board, will have approached their providers for further
information as stated above in paragraph 9.6. Please see also the examples given in FRS 17.
8.14 Charity Commission guidance on the impact of FRS17 on free reserves is as follows:
“3.4. Where, under FRS17, a charity discloses a significant pension fund deficit, this does not
mean that an immediate liability for this amount crystallises. Similarly, where a pension surplus is
disclosed this does not create an immediately realisable asset that can be released straight away
and expended on the purposes of the charity. In particular, the disclosure of a pension liability
does not mean that the equivalent amount is already committed and is no longer available to the
trustees to further the charity's objectives.
3.5. The funding position of a pension scheme will result in a cash flow effect in terms of an
increase or decrease in contributions over a period of years. The charity needs to revisit its
business plans and budgets and ascertain how this outflow might impact on future operational
plans and budgets. If increased contributions can be met through budgeted inflows then the impact
on reserves policy is marginal. In other cases, it might be necessary to set aside resources
currently held to help fund anticipated increases in cash flows.
3.6. In looking at cash flow forecasts generally, it is probable that pension contributions are likely
to increase at a faster rate than charitable income. Trustees may need to revisit their reserves
policy sooner than they might otherwise have done, particularly with the advent of the new
Diocesan Annual Report and Financial Statements Guide - 63
statutory scheme specific funding requirement (replacing the minimum funding requirement for
defined benefit schemes).
4. Setting a reserves policy
4.1. In so far as an FRS17 calculated pension deficit does not result in an immediate equivalent
cash commitment, it would not generally be appropriate for trustees to regard an equivalent
amount as a designation of charitable funds. To do so would indicate an intention to apply the
amount designated to make good the full amount of any reported pension liability and indicate that
such funds were unavailable to expend on the charity's general purposes.
4.2. A good starting point is for a charity to exclude the FRS17 calculated asset or liability when
calculating free reserves but then to give careful consideration to the cash flow implications that
may arise from the accounting disclosure in terms of increased or reduced contributions.
4.3. Where a charity is confident that it can meet contributions from projected future income
without significant impact on its planned levels of charitable activity then it is unlikely that trustees
will need to designate any of their existing funds to meet future pension commitments.
4.4. Where contribution increases create uncertainty as to the charity's ability to meet them from
projected future income, or would result in a significant curtailment of charitable activities, then
urgent consideration by the trustees is required. In such circumstances immediate actuarial and
legal advice is likely to be appropriate; it would be prudent to create a designation in so far as it is
anticipated that the ability to make future contributions is dependent upon the assets currently held
by the charity.”
- from “Charity Reserves and Defined Benefit Pension Schemes” (version: May 2005)
Diocesan Annual Report and Financial Statements Guide - 64
9.
Gross and Net Presentation of Assets and
Expenditure
Accounting Requirements
9.1
The Companies Act 1985 stipulates that "Amounts in respect of items representing assets or
income may not be set off against amounts in respect of items representing liabilities or
expenditure (as the case may be), or vice versa." [Companies Act 1985 Sch. 4.5]
9.2
Exceptional items relating to specific categories must be shown separately on the face of the SOFA
(within the net income/expenditure figure) and any separate statement of income and expenditure.
"When the net amount is not material, but the gross profits or losses are material, there should be a
related note analysing the profits and losses." [FRS 3 para 20]
9.3
Linked presentation - FRS 5 requires that in certain specific circumstances assets and liabilities
should be netted off, but information about the gross items must be given on the face of the balance
sheet. For donated services and facilities (“intangible income”), however, the Charities SORP
requires the estimated value of the related income and expenditure to be shown gross in the SOFA
(see below). An example at diocesan level is as follows:
The cost of employing secretaries for Suffragan Bishops: the cost is met in full by the Church
Commissioners through the Bishoprics Cathedral department, though the employers of the people
concerned are usually the individual DBFs who are responsible for the terms and conditions of
employment.
9.4
Offset - the process of aggregating debit and credit balances and including only the net amount on
the balance sheet. FRS 5 specifies the principle that assets and liabilities should not under any
circumstances be offset. However, debit and credit balances should be aggregated when they do not
constitute separate assets and liabilities.
9.5
SORP 2005 requires that "all incoming resources should be reported gross whether raised by the
charity or its agents”. Netting off is only allowed for the costs of external fundraising by persons
not accountable to the DBF as its employees or agents, as explained in section 4 paragraph 4.4.8 –
(SORP para 95). Grossing up in the SOFA is also required for the notional value of donated
services and facilities and their utilisation (SORP paras 133 to 136). For diocesan purposes the
ideal “netting off” is zero, if for no other purpose than to be consistent with advice given to
parishes.
9.6
Some receipts can be regarded as reimbursement and offset against related expenditure (though a
separate asset must be shown in the balance sheet) e.g. the receipt of an insurance payment. FRS 12
dealing with provisions, contingent liabilities and contingent assets describes the circumstances in
which this is possible. Further information is given in paragraphs 148 – 216, 321 – 332, 340 – 348
and 430 – 448 of SORP 2005.
Diocesan Annual Report and Financial Statements Guide - 65
Application to DBFs
Stipends Augmentation
9.7
The cost of Ministry in Parishes should be shown gross and not netted against income from the
Archbishops’ Council, glebe rents and other associated income (see also section 4.4.8). Associated
income includes guaranteed annuities, personal grants, local income (trusts, unassigned fees and
Easter offerings), chaplaincy income, team vicars, priests in charge and archdeacons' grants. Whilst
it may be argued by some that guaranteed annuities and personal grants belong to the incumbent by
virtue of office, they are part of the overall stipend calculation and during a vacancy such grants
fall in. Also, in certain circumstances, annuities can be applied as priest in charge grants. Such
payments are part of the total cost of providing ministry. For clarification, it may be appropriate to
include a note in the financial statements, separate from employee information (see section 11.1
below), stating the average numbers of clergy and licensed lay workers deployed in the diocese
whose stipends and associated costs are met through the DBF.
Housing Income and Expenditure
9.8
Expenditure on housing whether normal maintenance, minor improvements or major
refurbishment, even when funded in whole or part through grants/contributions from PCCs and
other organisations (e.g. Marshall’s Charity) or from DPA, should be shown gross and the funding
receipts shown separately under the appropriate headings.
Value Linked Loans
9.9
Value linked loans from the Church Commissioners are used to purchase freehold (or extremely
long leasehold) property. Normally these loans are repaid with the proceeds of sale of the property.
However, they may be repaid at any time out of diocesan funds and if the property in question
ceases to be occupied by a qualifying person (assistant curate, sector minister, divorced or
separated clergy spouse) then the loan must be repaid. In addition, the DBF is responsible for the
interest even though it may recoup some or all of this from PCCs or individuals. Consequently the
requirements of FRS 5, para 27 are not met and linked presentation is inappropriate.
CBF Funds Loans
9.10 Loans to the DBFs from the CBF Funds should not be netted against the corresponding loans to
PCCs. Nor should the repayment of capital or interest be netted off.
Diocesan Annual Report and Financial Statements Guide - 66
10. Other Income and Expenditure Information
Related Party Transactions
10.1 These paragraphs of SORP 2005 have been completely reorganised but the principles remain
consistent with the previous SORP. The connections that create related parties can be quite distant;
if in doubt, the relevant section of the SORP Glossary (para. GL50) needs careful study.
10.2 Related parties have been defined at length in the Glossary and include:
1) a trustee of the charity;
2) a custodian trustee of the charity;
3) a person or bodies with power to appoint or remove a significant proportion of trustees of the
charity;
4) a person or bodies whose consent is required, or who is entitled to give directions prior to
exercise of any discretion of trustees of the charity;
5) any institution connected with the charity or director of such an institution;
6) another charity with which the charity is commonly controlled;
7) any pension fund for the benefit of employees or any other person who is a related party of the
charity;
8) any officer, agent, employee having authority or responsibility for directing or controlling the
major activities or resources of the charity;
9) any person connected to a person who is related to the charity, including members of the same
family or household of the charity trustee, the trustees, (potential) beneficiaries of any trust,
which include a charity trustee or related person, any business partner of a charity trustee
similarly, and any body corporate in which the charity trustee, with or without others has a
participating interest;
10) any person or body who makes available to the charity the services of any person or body as a
charity trustee is connected with a charity trustee.
Examples follow of disclosures of transactions with subsidiary undertakings and with connected
charities.
Diocesan Annual Report and Financial Statements Guide - 67
Example - Transactions with subsidiary undertakings
ABC Ltd
XYZ Ltd
2005
2004
2005
2004
£’000
£’000
£’000
£’000
50
45
55
60
2
5
3
2
40
60
-
-
92
110
58
62
200
160
-
-
-
-
1
4
200
160
1
4
(18)
118
10
30
Charged by MDBF:
Pay costs
Administration and office accommodation
Other costs
Charged to MDBF:
For Services under the Service Level Agreement
Other costs and charges
Amounts owing by subsidiary undertaking at 31
December (creditor)/debtor
Example - Connected charities
The MDBF acts as custodian trustee and Diocesan Authority in relation to a number of parochial
and other ecclesiastical trusts and in this context the Directors consider that the following are
connected charities:




Diocesan Board of Education
Social Work
Council for the Deaf
Diocesan Trustees Limited
(DBE)
(SW)
(CD)
(DTL)
Grants are made and services provided to SW and CD to support their work and their objects are
congruent with those of MDBF.
DBF bears the entire operating costs of DTL and DBE, consisting principally of accounting,
secretarial and administrative services. These amounted to £30,000 (2004: £28,000) for DTL and
£73,000 (2004: £60,000) for DBE. At the year end both DTL (2004: £33,000) and MDBE had £nil
(2004: £nil) inter-company balances with MDBF.
Diocesan Annual Report and Financial Statements Guide - 68
Transactions with connected charities
SW
CD
DTL
2005
2004
2005
2004
2005
2004
£’000
£’000
£’000
£’000
£’000
£’000
50
48
20
15
25
24
Administration &
accommodation
-
-
1
1
3
3
Other costs
1
-
-
-
2
1
51
48
21
16
30
28
5
15
3
3
15
8
105
110
7
7
-
-
Charged by MDBF:
Pay costs
Inter-company balances
(debtor) at 31 December
Grants made by MDBF
Employee Information Note to Accounts
10.3 Schedule 4:56 of the Companies Act 1985 requires disclosure in the notes of the number of
employees employed under contracts of service. In case of dioceses, the DBF is often the employer
of all those in receipt of salaries paid through synodical funding, even when a separate charitable
limited liability company may exist, for say, the Board of Education. In these situations it is
helpful for the numbers employed and the appropriate costs to be set out in the notes by
department/division or board/committee.
10.4 The SORP states that it is important that the financial statements disclose costs of employing staff
who work for the charity, whether or not the charity itself has incurred those costs, including
seconded staff, agency or staff employed by connected or independent companies. Where such
costs are material the notes should make clear what arrangements are in place, the reason for the
arrangements and the amounts involved.
10.5 Disclosure of costs should include pension costs (excluding pension finance costs). The yearly
average of number of staff should be disclosed; and where, because of the number of part time staff
employed, the average number of full time equivalent staff may be disclosed broken down by
appropriate categories according to the activities of the charity. The notes should also disclose the
number of employees whose emoluments fell within each band of £10,000 from £60,000 upwards.
10.6 As clergy in parochial posts and dignitaries are office-holders not employees it is not necessary to
include them under employee information. Since the gross cost of ministry in the parishes is
included in the accounts and is likely to be the largest item of expenditure, it might be appropriate
to indicate the total numbers of clergy instituted or licensed in the diocese in a note which makes
clear that the clergy are not employees.
Illustrations
10.7 Appropriate notes might be as follows:
Diocesan Annual Report and Financial Statements Guide - 69
Employees
The average staff (excluding directors) numbers based on full time equivalents were as follows:
2005
2004
Full-time
Part-time
Full-time
Part-time
30
2
33
4
6
3
7
3
36
5
37
7
Support for charitable activities
Administration and finance
Total
Part-time numbers are shown as full time equivalents.
Staff costs during the year amounted to:
2005
2004
Salaried
Stipend
Total
Salaried
Stipend
Total
£’000
£’000
£’000
£’000
£’000
£’000
1,230
120
1,350
1,209
150
1,359
Pension contributions
330
28
358
210
33
243
Social security costs
105
9
114
95
10
105
1,665
157
1,822
1,514
193
1,707
Wages, salaries and stipends
Total
The number of employees whose emoluments for the year exceeded £60,000 was as follows:
£60,000 - £70,000
2005
2004
2
0
Retirement benefits are accruing to these higher paid staff under MDBF's defined benefits scheme.
Parochial stipendiary clergy are not employees of MDBF and therefore their stipends, pensions and
social security costs are not included in this note.
Directors' and Trustees’ emoluments and expenses
None of the directors or trustees has received any emoluments from MDBF in respect of services
performed as a director or trustee (2004: £Nil).
The Chairman of the MDBF is married to a clergyman who because of his office is in receipt of a
stipend and housing, which is paid via the MDBF at an estimated cost of £38,000 (2004: £36,000).
Archdeacons, parochial clergy and sector ministers who are directors are in receipt of a stipend and
housing by virtue of their office. The MDBF incurs these costs, which are estimated to total
£35,000 to £42,000 per person (2004: £33,000 to £40,000). 15 (2004: 12) directors, who held
ecclesiastical office during the year, were paid stipends of £305,000 (2004: £255,000) and were
reimbursed expenses for travel, subsistence and incidental costs of £9,000 (2004: £7,000). Pension
Diocesan Annual Report and Financial Statements Guide - 70
contributions on those stipends amounted to £103,000 (2004: £86,000). Two Archdeacons are
provided with a car by MDBF.
Other directors were reimbursed for travel, subsistence and incidental costs amounting to £4,000
(2004: £2,000) for services provided to MDBF in the capacities in which they served.
A clerical director working part time in a sector post in the diocese and part time in parochial
ministry received reimbursement of working expenses in relation to that sector post amounting to
£2,500 (2004: £1,945).
Office holders who are not employees
2005
2004
329
332
£000
£000
6,581
6,308
394
378
Pension Contributions
2,224
2,132
Total
9,199
8,818
Parochial Clergy: The average number of the clergy holding
parochial or archidiaconal posts in the diocese was
At a total cost of:
Stipends
National Insurance Contributions
Cost of audit and other financial services
10.8 The notes should disclose separately the amounts payable to the auditor in respect of their audit
work for the year and other financial services such as tax and other financial advice, accountancy
services and consultancy.
Ex-Gratia payments
10.9 The total amount or value of any payment, non-monetary benefit, expenditure of any kind or
waiver of rights to property to which the charity is entitled, which is made in fulfilment of a
compelling moral obligation should be disclosed (see Charity Commission publication (CC7) – ExGratia Payments by Charities for further details). If the trustees consider the payment to be in the
interests of the charity over and above the moral obligation, it should not be treated as ex-gratia.
Other Voluntary Income
Legacies
Legacies should if possible be monitored as regard to the timing of receipt of funds. A legacy is
not receivable just because the charity is told about the possibility of such a source of potential
income and/or capital. There must be legal entitlement and sufficient evidence to provide the
necessary degree of certainty that it will ultimately be received, and the value of the incoming
resources to be brought into account must be reasonably reliable. A letter from a personal
representative that is unconditional and that states the value of funds or property that will be
transferred to the charity would normally be sufficient evidence. Where a payment is received or
Diocesan Annual Report and Financial Statements Guide - 71
notified as receivable (by a personal representative) after the year end, but it is clear that the DBF’s
entitlement arose in the year upon the death of the testator, for example with the amount payable
agreed by the personal representatives prior to the year end, then it should certainly be accrued as
incoming resources in the SOFA and as a debtor in the balance sheet.
If the charity has been notified of a legacy that is material and not included in the accounts, because
of any of the above conditions have not been met, an estimate of the amount receivable or else
information about the legacy should be disclosed in the notes. Material assets bequeathed to the
charity but subject to a third party life tenancy should be disclosed, but not brought into account as
assets until the residuary interest falls in and thus becomes an interest in possession. Accounting
policy notes should distinguish between accounting treatments adopted for pecuniary and residuary
legacies and legacies subject to a life interest.
Gifts in Kind
10.10 Incoming resources in the form of gifts in kind should be included in the SOFA as follows:
a) Assets given and held as stock for distribution should be recognised as “voluntary income”
only when distributed, with an equivalent amount shown as resources expended under the
appropriate category in the SOFA to reflect its distribution.
b) Assets given for use by the charity on a continuing basis (e.g. property for diocesan use) should
be recognised as incoming resources and as a fixed asset when receivable.
c) A gift in kind, but on trust for conversion into cash for the charity’s use, should be recognised
at a reasonable estimate of its gross value to the diocese (open market value of an equivalent
item) when receivable and when material an adjustment should be made to the original
valuation upon subsequent realisation of the gift.
10.11 The basis of any valuation should be disclosed on the accounting policies. Undistributed assets (a)
at the year end should be disclosed by a general description and estimate of value if material.
Donated Services and Facilities, previously known as “Intangible Income”
10.12 The diocese may receive assistance in the form of donated facilities, beneficial loan arrangements
or donated services and these should be included in the SOFA as incoming resources where the
benefit is reasonably quantifiable and measurable and without regard to donor-costs (unlike SORP
2000). The value should be the estimated value to the charity of the service or facility received,
being the open market cost that would otherwise have to be paid for a service or facility meeting
the actual needs of the DBF as determined by the Board, not necessarily as perceived by the donor.
Where services or facilities are recognised, an equivalent amount should be included as expenditure
under the appropriate heading in the SOFA. Donated services of volunteers should not be valued
and disclosed in the SOFA as quantification is not reliable enough for audit purposes, but see
below.
10.13 Donated services and facilities include those usually provided by an individual or entity as part of
their trade or profession for a fee, e.g. accountants, lawyers, secondment of staff from secular or
commercial organisations, the provision of office facilities or secretarial support, etc. Again, open
market value for an equivalent item as above should be used for the estimate for the SOFA.
Disclosure should distinguish between the different major items, such as seconded staff, loaned
assets, etc. The accounting policy notes should include the basis of valuation. Where donated
Diocesan Annual Report and Financial Statements Guide - 72
services are not disclosed in the SOFA (e.g. volunteers) this should be disclosed in the Trustees’
Report, if the information is necessary for the reader to gain a better understanding of the activities.
This is not considered likely to be the case on the grounds of materiality for the understanding of
DBF accounts.
Diocesan Annual Report and Financial Statements Guide - 73
11. Summarised Financial Statements and Summary
Financial Information
11.1 The Diocese may wish to produce financial information for the Diocesan Synod and for the wider
parochial readership in a simpler form than that which is included in the statutory financial
statements.
The SORP provides for two options where the intention is to communicate key financial
information, without providing the greater detail. These are to produce Summarised Financial
Statements or Summary Financial Information.
11.2 Charitable companies must follow the provisions of the Companies Act 1985 concerning nonstatutory financial statements, while from 1 October 2005 statutory summary financial statements
in accordance with S.I. 2005/2281 (The Companies (Summary Financial Statement) (Amendment)
Regulations 2005) can now be distributed in place of the full audited accounts to which the
company members of any private company (and any other persons) are entitled, but apart from that
there are still no legal provisions in this area for other charities.
Summarised Financial Statements
11.3 Summarised Financial Statements are based on the statutory financial statements and communicate
key financial information without providing the greater detail as required in the full statutory
document. They normally represent the entire finances of the charity, extracted from the statutory
financial statements to include a summary of the SOFA information and that in the Balance Sheet.
Other characteristics are given in SORP 2005 para 372, Table 10.
11.4 Summarised financial statements have to be accompanied by a statement signed on behalf of the
trustees to explain:
 that the statements are not the full statutory financial statements but a summary of the SOFA
and balance sheet
 whether the statutory financial statements have been externally audited
 whether or not the audit report was qualified
 the nature of the qualification (if any)
 where the statutory financial statements can be obtained
 the date on which the Trustees’ Annual Report and financial statements were approved
 whether or not the Trustees Annual Report and financial statements have been submitted to the
Charity Commission
 where the summary is of branch accounts, it must be stated that is a branch extract from the
statutory financial statements of the main charity whose name is…
11.5 The Board’s auditor should attach a statement to the Summarised Financial Statements giving an
opinion as to whether or not these are consistent with the statutory Trustees’ Annual Report and
financial statements.
Diocesan Annual Report and Financial Statements Guide - 74
Summary Financial Information
11.6 Summary Financial Information normally presents information about a particular aspect of the
charity’s finances, such as an analysis of incoming resources, or information about a particular
region. It is not necessarily drawn from the statutory financial statements and does not purport to
be a summary of the SOFA or balance sheet.
11.7 Summary financial information, in whatever form, must be accompanied by a statement signed on
behalf of the trustees stating:



the purpose of the information
whether or not it is from the statutory Trustees’ Annual report and financial statements and
whether these have been audited
where a copy of the statutory Trustees’ Annual Report and financial statements can be
obtained.
Diocesan Annual Report and Financial Statements Guide - 75
12. Implementation of the Guide
12.1 Provided the principles of the Charities SORP 2000 were fully adopted, dioceses in adopting the
recommendations in this Guide should find that no major changes are required to existing
accounting policies. Whilst there will be some changes to format there should be no need for prior
year adjustments other than the restating of comparative figures to put them on the SORP 2005
basis.
12.2 While much of the content of the trustees’ annual report under Regulation 11 of S.I.2005/572 and
the best practice requirements of SORP 2005 (especially in the areas of setting and reporting on
appropriate annual objectives, their achievement and the factors affecting this, where crucial
marketing messages may need to be conveyed) can be pulled together in draft form by Officers, it
is necessary to bear in mind that the report’s formal adoption and signatory authorisation are
matters for the whole Board of Directors, as is also the case for the Board’s approval and signing of
the statutory Summary Information Return to the Charity Commission for the public record.
Diocesan Annual Report and Financial Statements Guide - 76
Appendix I: Membership of the Working Group
Simon Lloyd
Diocesan Secretary, Diocese of Coventry (Chair)
Neil Barrett
Finance Director, Diocese of Carlisle
Stephen Collyer
Director of Finance and Assistant Diocesan Secretary, Diocese of Winchester
Diocesan Accountant, Diocese of Guildford
Greyham Dawes
Director - Charities & Education Unit, Horwath Clark Whitehill LLP
Ashley Ellis
Diocesan Secretary, Diocese of Wakefield
Pamela Flood
Financial Planner, The Archbishops’ Council
Paul Gibson
National Senior Manager, Charity Services and Social Enterprise Group, Mazars LLP
(supported by Philip Wells and Hilary Tarr, Mazars LLP)
Roger Pinchbeck
Finance Director, Diocese of Sheffield
Nigel Wearne
Finance Director, Diocese of Oxford
Diocesan Annual Report and Financial Statements Guide - 77
Appendix II: History and Background to the Guide
1st Edition
-
Draft guide produced and circulated November 1994
-
Final draft adopted at Diocesan Secretaries’ Conference June 1995
2nd Edition
-
Revision process began May 1997 following the guide’s use in producing 1995 and 1996 Accounts
-
Draft guide produced August 1997 which took into account publication of the Charity SORP and
other changes in accounting practice
-
December 2001 a further draft was circulated for consultation. This draft was produced following
discussions with the Charity Commission
-
Guide circulated to dioceses in January 2002
3rd Edition
-
Update of guide needed following issue of revised Charities SORP (SORP 2005) in March 2005
-
New group set up to produce revision in October 2005
-
Guide “adopted” at Diocesan Secretaries’ Conference July 2006
-
This edition approved by Working Group on 25 August 2006
Diocesan Annual Report and Financial Statements Guide - 78
Appendix III: Legal and regulatory requirements
3.1
A Diocesan Board of Finance is in almost every case a limited company. As such, it is subject to
the accounting requirements of the Companies Acts 1985 in addition to various Measures of the
Church of England and UK Financial Reporting Standards (FRSs), Statements of Standard
Accounting Practice (SSAPs) and the ASB’s Urgent Issues Task Force Abstracts (UITF
Abstracts) as well as “Accounting and Reporting by Charities”, the 2005 Statement of
Recommended Practice (the Charities SORP 2005, or ‘SORP 2005’). All these requirements
govern the preparation of published reports and financial statements. Those most likely to be of
significance to dioceses, but by no means a definitive list, are as follows:
SORP 2005
Accounting and Reporting by Charities. The SORP’s disclosure requirements
are applicable to all auditable charities and cannot be avoided if a true and fair
view is to be given by the financial statements.
FRS 1
Cash flow statements (especially paragraphs 6-33)
FRS 2
Accounting for subsidiary undertakings (especially paragraphs 20-23, 33, 39)
FRS 3
Reporting financial performance (especially paragraphs 12-24, 26-30)
FRS 5
Reporting the substance of transactions (especially paragraphs 14-20, 29-38)
FRS 8
Related Party transactions
FRS 9
Associates and Joint Ventures
FRS 11
Impairment reviews
FRS 12
Commitments in the context of provisions and contingent assets and liabilities
FRS 15
Capitalisation and depreciation of functional fixed assets
FRS 17
Pension provision accounting (superseded SSAP 24)
FRS 18
Disclosure of accounting policies
FRS 21
Events after the Balance Sheet date
FRS 28
Corresponding amounts
The Diocesan Boards of Finance Measure 1925
The Parsonages Measures 1938 and 1947
The Diocesan Stipends Fund Measure 1953
The Parochial Church Councils (Powers) Measure 1956
The Repair of Benefice Buildings Measure 1972
The Endowments and Glebe Measure 1976
The Pastoral Measure 1983
The Patronage (Benefices) Measure 1986
The Diocesan Boards of Education Measure 1991
Diocesan Annual Report and Financial Statements Guide - 79
The Miscellaneous Provisions Measure 1992
The Pensions Measure 1997
The National Institutions Measure 1998
The relevant Church measures are available on the National Administration Intranet along with
the current version of this Guide.
It is assumed that any financial reporting requirements not listed above but which would be
applicable to diocesan accounts are known to diocesan financial staff and their auditors.
However, a list of extant standards and other ASB pronouncements as at March 2005 is given in
the SORP at Appendix 2, indicating which are applicable to charities (not necessarily to all DBFs
in each case) and those which are not. In addition a current list of applicable requirements is
given at Appendix VIII of this Guide.
3.2
SORP 2005 - Accounting and Reporting by Charities - was issued in March 2005 by publication
on the Charity Commission website (www.charity-commission.gov.uk). This followed a
consultation exercise undertaken in 2004 seeking views on the proposed revision of SORP 2000
from charities, umbrella groups, professional advisers and other interested parties on the basis of
an exposure draft. Although early voluntary adoption for financial years commencing prior to 1
April 2005 was ‘encouraged’ at the time, SORP 2005 first applies to diocesan annual reports and
accounts for the year ended 31 December 2006.
3.3
It is acknowledged that the SORP is necessarily written in the language of accounting principles
and standards and may not be readily understood by people with little or no knowledge of
accounting. Hence by having to follow its regulatory requirements a charitable company’s
statutory annual report and financial statements (in this case the Diocesan Board of Finance) may
not necessarily be understood by people with a non-accounting background. Therefore, in
addition to the Summary Information Return* of key performance and governance data, there is
an increasing case for the production of clear simple and concise financial information in
summary form, which many charities include within some kind of non-statutory annual review,
avoiding the jargon, for presentation to a wider diocesan readership. This is quite distinct from the
statutory summary financial statements (whose form and content are specified by Regulations)
that all companies (charities included) can now distribute to members and other entitled persons
(but only with their prior written agreement) in place of the company’s full audited financial
statements under the Companies Act 1985. (*The ‘SIR’ is a special section (Part C) in Charity
Commission Annual Returns for 2005 year-ends onwards, which all registered charities
exceeding £1 million gross income must complete as public domain information – unlike Part B,
the charity monitoring section, which is confidential and so unpublished.)
3.4
The Guide includes a model set of statutory annual report and financial statements (see
Appendices V and VIII). In preparing the documents, the working group is particularly grateful to
those dioceses from whose annual reports and accounts they drew illustrations of what they
perceived as good practice and of comments to be made in due course by the Charity
Commission.
3.5
The model annual report and financial statements need not be followed slavishly. Each statement
and accounting policy in any set of diocesan financial statements should be considered carefully
to ensure that it meets the circumstances of the diocese concerned. Nevertheless, there are many
Diocesan Annual Report and Financial Statements Guide - 80
features common to all dioceses (for example, the legal rules governing diocesan stipends fund
capital and income accounts) which call for similarity of accounting treatment to a greater degree
than in the past. Also the suggested headings/captions and items to be included under each
heading comply with the SORP’s requirements. Whilst recognising that these may necessitate
some changes to existing diocesan formats it is hoped the recommendations will be found helpful.
3.6
Not mentioned elsewhere in this Guide is the Report of the Independent Auditors on the financial
statements. In addition, for compliance with the SORP the auditors’ confirmation of consistency
will have to be included, in addition to the Board’s declaration, with any set of summary financial
statements produced in addition to the full statutory Annual Report and financial statements (see
section 11.3). If the auditors’ report is qualified or ‘non-standard’ in any way, then that fact has
to be reported on any summary including the reasons for the qualification or other reservation.
Diocesan Annual Report and Financial Statements Guide - 81
Appendix IV: Draft Risk Register
Risk
Impact
Probability
Gross
Risk
Risk Management
Residual Risk
Major source of
diocesan income comes
from parish share
(voluntary giving).
Receipts are normally in
the region of 95%; what
if these were less than
90%?
High
Medium
6
Monthly monitoring of receipts, encouragement of
parishes to use monthly standing orders or direct
debit system. Continued programme of education in
deaneries and parishes as to why money is required.
Encouragement of accountability at all levels.
Careful control of expenditure. Ensure reserves
policy takes account of this risk and makes an
appropriate provision. Prepare contingency plans
for reduction in expenditure.
Possible
withdrawal from
reserves
High
Low
3
Accept risk but assess such situations Explore
various options, which it may be appropriate to take
if threat materialises. Improve communication
between partners and establish detective controls.
If threat
materialises,
then
administration
could increase
(accounting for
VAT) in order
to avoid
substantial
financial
consequences
(VAT on
deve1opment
value).
Person
Responsible
Monitoring
Arrangements
External:
Financial:
Involvement in property
development with one or
more partners. What
would be the effect of
one partner taking a
decision unilaterally?
For example, deciding to
opt to tax their interest in
the development and the
consequential VAT
liabilities for the
remaining partners on
surrender and re-grant of
leases.
Diocesan Annual Report and Financial Statements Guide - 82
Risk
Impact
Probability
Gross
Risk
Risk Management
Residual Risk
There is a delay in the
release of £1M grant
money from one of the
Heritage bodies for a
major parish project.
The Bishop insists that a
bridging loan is made to
the parish because the
grant money is secure.
Medium
Low
2
Accept risk. Ensure that overdraft facility with
bankers is sufficient to cover sudden large
withdrawals. Check that overnight bank balances
attract best rate of interest possible whilst being
readily accessible for use. Set up preventative
controls to try and avoid such a situation
developing in future.
Loss of interest
on money
advanced
High
Medium
6
Ensure Bishop’s Senior Staff are fully briefed as to
current position on numbers (at least monthly) and
being held accountable. Draw attention to the
budget implications if over deployment continues.
Reassess process of pastoral re-organisation to
ensure established posts and budgeted posts are in a
reasonable correlation. Ensure the trustees are kept
fully informed of the situation.
For every post
over budget an
extra £30,000 is
required.
Person
Responsible
Monitoring
Arrangements
External:
Strategic:
Number of clergy in post
rising above the
budgeted figure
For those
dioceses still
receiving
selective
allocations,
there is a loss of
allocation for
numbers below
the national
formula.
Diocesan Annual Report and Financial Statements Guide - 83
Risk
Impact
Probability
Gross
Risk
Risk Management
Residual Risk
Medium
High
6
Try to ensure vacant places are filled by people
with the relevant expertise even if that means “head
hunting”. Arrange training programmes on the
duties of charity trustees/company directors and the
day to day administration of the diocese. Try to
analyse why the elections were poorly contested.
An inadequate
Board of
Directors
Person
Responsible
Monitoring
Arrangements
Person
Monitoring
Strategic:
Newly elected Board of
Directors is numerically
weak and also lacking in
expertise in several
directions.
Could lead to a
lack of decision
making and
failure to deliver
on key
strategies.
External: Reputational
Parish related issue, e.g.
child protection, clergy
marriage breakdown
High
Low
3
No legal obligation, but the reputational damage to
the Church as a whole is immense. Ensure Bishop’s
directions (policy) on such matters is widely
available and known in order to prevent the risk
happening wherever possible. Ensure swift action
taken if a situation does arises. Fully briefed
Press/Media personnel essential to undertake
damage limitation exercise locally and nationally.
Query insurance cover.
Parishioners
lose confidence
and attendance
at church drops.
Also impact
may be felt
wider afield
causing
financial
downturn.
Risk
Impact
Proba-
Gross
Risk Management
Residual Risk
Diocesan Annual Report and Financial Statements Guide - 84
bility
Risk
Medium
Medium
4
Ensure that all members of staff have a copy of the
Health and Safety policy and fully understand their
role in the policy. Ensure the appropriate HS
personnel are in place and receive regular advice on
recent changes in regulations. Check the operation
of the company’s policy through regular monitoring
and adjust as necessary.
Possible tribunal
Medium
High
6
Consider workload of key staff, reconsider the
priorities in light of new requirements, look at what
could be delegated or what put on hold. Look at
existing operational systems to see what
improvements could be made – better equipment
etc. to reduce existing workload.
Full compliance
may not be
achieved in one
year, but
relevant
disclosures may
be sufficient.
High
Low
3
Ensure business resumption plan covers such a
contingency and not just a major disaster. Make
sure the day to day backup procedures are working
efficiently and are carried out. Make arrangements
to enable key staff to work from home or to work
from a pre-arranged location for a short spell.
Some disruption
to the normal
flow of business
– minimised as
much as
possible.
Impact
Proba-
Gross
Risk Management
Residual Risk
Responsible
Arrangements
Person
Monitoring
Regulatory:
Breach of a Health and
Safety regulation by
staff member
Regulatory:
Changes to accounting
standards mean a great
deal of additional work
to ensure compliance.
Staff involved already
overstretched, noncompliance means a
qualified audit report.
Operational:
Building alterations in
multi-occupancy
building causes major
disruption to computer
network when power
cable severed.
Risk
Diocesan Annual Report and Financial Statements Guide - 85
bility
Risk
Medium
6
Responsible
Arrangements
Operational:
Major event planned
outside the diocese by
sub-committee of a
diocesan board, without
reference to the board
concerned or DBF.
Response to the event
was not as anticipated
due to adverse weather
conditions. The result
was a substantial deficit
in the name of the
diocese.
High
Strengthen the lines of accountability. Ensure there
are financial regulations in place (accepted by the
Diocesan Synod) setting out financial delegation
and authorisation procedures to ensure no
individual (staff or committee member) can make a
commitment on behalf of the diocese without
proper authority. Ensure these are widely known.
If the risk
materialises
then there could
be an
unquantified
liability.
REVIEWED BY THE AUDIT COMMITTEE ON:
DATE OF NEXT REVIEW:
REVIEWED BY THE BOARD OF TRUSTEES ON:
DATE OF NEXT REVIEW:
Diocesan Annual Report and Financial Statements Guide - 86
Appendix V: Model format Trustees’ Annual Report
MERCIA DIOCESAN BOARD OF FINANCE
TRUSTEES’ ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2006
The trustees, who are also directors for the purposes of company law, present their combined trustees’
report and directors’ report, together with the audited financial statements, for the year ended 31
December 2006.
This report refers to the Diocese of Mercia except for Section 2 and is set out as follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
1.
Reference and administrative details of the Diocese of Mercia
Summary information about the structure of the Church of England
Structure, governance and management
Objectives and activities
Achievements and performance
Financial review
Plans for future periods
Funds held as custodian trustee for others
Appointment of auditors
Reference and administrative details of the Diocese of Mercia
These are set out on page xx.
2.
Summary information about the structure of the Church of England
The Church of England is organised as two provinces; each led by an archbishop (Canterbury for
the Southern Province and York for the Northern). Each province comprises dioceses of which
there are 43 in England.
Each diocese in England is divided into parishes. Each parish is overseen by a parish priest (usually
called a vicar or rector). From ancient times through to today, they and their bishop are responsible
for the 'cure of souls' in their parish.
Her Majesty the Queen, who is the Supreme Governor of the Church of England, appoints
archbishops, bishops and deans of cathedrals on the advice of the Prime Minister. The two
archbishops and 24 senior bishops sit in the House of Lords.
The Church of England is episcopally-led (there are 108 bishops (including Diocesan Bishops and
Assistant and Suffragan Bishops). It is governed by General Synod as its legislative and
deliberative body at national level, making decisions on matters of doctrine, the holding of church
services and relations with other churches. General Synod passes measures which, if accepted by
Parliament, have the effect of acts of Parliament. It is made up of three groups or houses of
members: the Houses of Bishops, of Clergy and of Laity, and meets in London or York at least
twice annually to consider legislation for the broader good of the Church.
Diocesan Annual Report and Financial Statements Guide - 87
The three National Church Institutions
The Archbishops' Council, the Church Commissioners and the Church of England Pensions Board
are sometimes referred to as the three National Church Institutions.
The Archbishops' Council was established in 1999 to co-ordinate, promote, aid and further the
mission of the Church of England. Its task is to give a clear sense of direction to the Church
nationally and support the Church locally by acting as a policy discussion forum.
The Church Commissioners manage the historic assets of the Church of England, spending most of
their income on pensions for the clergy. The costs of episcopal administration through the diocesan
and suffragan bishops are met by the Church Commissioners.
The Church of England Pensions Board was established by the Church Assembly in 1926 as the
Church of England's pensions authority and to administer the pension scheme for the clergy.
Subsequently it has been given wider powers, in respect of discretionary benefits and
accommodation both for those retired from stipendiary ministry and for widow(er)s of those who
have served in that ministry, and to administer pension schemes for lay employees of Church
organisations.
The Board, which reports to the General Synod, is trustee of a number of pension funds and
charitable funds. Whilst the Church has drawn together under the Board its central responsibilities
for retirement welfare, the Board works in close cooperation both with the Archbishops' Council
and with the Church Commissioners.
The Cathedral
The cathedral is the mother church of the diocese and legally is constituted as a separate charity
currently exempt from Charity Commission registration and supervision. Copies of its trustees’
report and financial statements may be obtained from the Cathedral Office, the Cathedral, xx.
The information about General Synod, the Church Commissioners, the Archbishops’ Council and
Mercia Cathedral is included as background only. The financial transactions of these bodies do not
form part of these financial statements.
The Diocese
Diocesan Synod
The statutory governing body of the diocese is the diocesan synod which is elected with
representation across the diocese with broadly equal numbers of clergy and lay people meeting
together in Diocesan Synod with the diocesan bishops and archdeacons. Its role is to:





consider matters affecting the Church of England in the diocese;
act as a forum for debate of Christian opinion on matters of religious or public interest;
advise the bishop where requested;
deal with matters referred by General Synod;
provide for the financing of the diocese.
Deanery Synod
Deanery Synod has two houses, laity and clergy, and its role is to:
Diocesan Annual Report and Financial Statements Guide - 88
 respond to requests from General Synod;
 give effect to the decisions made by the Diocesan Synod;
 consider matters affecting the Church of England by drawing together the views of the parishes
within the deanery;
 act as a channel of communication to express the views of parishes to Diocesan Synod and
thence to General Synod;
 raise with Diocesan Synod such matters as it considers appropriate; and
 elect members of the deanery to the Diocesan Synod and of the diocese to General Synod.
The Bishop’s Council
Under the constitution of the Diocesan Synod, Bishop’s Council has the following functions:
 To plan the business of the Synod, to prepare the agenda for its sessions and to circulate to
members information about matters for discussion;
 To initiate proposals for action by the Synod and to advise it on matters of policy;
 To advise the President on any matter;
 Subject to the directions of the Synod, to transact the business of the Synod when the Synod is
not in session;
 Subject to the directions of the Synod, to appoint members of committees or nominate
individuals for election to committees;
 To carry out such functions as the Synod may delegate to it.
Parochial Church Council (PCC)
The PCC is the elected governing body of an individual parish which broadly is the smallest
pastoral area in the Church of England. Typically each parish has one parish church. The PCC is
made up of the incumbent as chair, the churchwardens and a number of elected and ex officio
members. Each PCC is a charity, and all are currently excepted from registration with the Charity
Commission, subject to the Charities Bill 2005 under which those above £100,000 gross income for
the year will be required to register once the Bill is enacted. Except where shown, the transactions
of PCCs do not form part of these financial statements. Financial statements of an individual PCC
can be obtained from the relevant PCC treasurer.
Parishes
A benefice is a parish or group of parishes served by an incumbent who typically receives a stipend
and the benefit of free occupation and use of a parsonage house from the diocese for carrying out
spiritual duties.
A deanery is a group of parishes over which a rural dean has oversight and an archdeaconry is a
group of deaneries for which an archdeacon is responsible.
The diocese is then the principal pastoral and in turn financial and administrative resource of the
Church of England, encompassing the various archdeaconries under the spiritual leadership of the
Diocesan Bishop.
Diocesan Annual Report and Financial Statements Guide - 89
3.
Structure, governance and management
The Diocese of Mercia was created in xxxx and took broadly its present form in xxxx as set out on
page xx. It covers an area of xx square kilometres being xx. The overall population is ex. million
and the demographics are generally xx.
The diocese is arranged as two archdeaconries, Mercia covering the western part with xx deaneries
and Palchester the eastern with xx deaneries. In total there are some xxx parishes.
Diocesan governance
The Diocese is governed by Standing Orders approved on xx xxxx 19xx and subsequent
amendments. Its statutory governing body is the Diocesan Synod, which is an elected body with
representation from all parts of the Diocese. Membership consists of ex officio members, including
the Bishops and Archdeacons, clergy members elected by the houses of clergy in Deanery Synods,
lay persons elected by the houses of laity in Deanery Synods, up to five persons who may be coopted by the house of clergy or the house of laity and a maximum of ten members nominated by
the Diocesan Bishop. The Diocesan Synod normally meets three times a year. Many of Diocesan
Synod’s responsibilities have been delegated to the Standing Committee and to Bishop’s Council.
Company status
The company, Mercia Diocesan Board of Finance (MDBF), was formed to manage the financial
affairs and hold the assets of the Diocese. It was incorporated on xx xxxxx 19xx as a charitable
company limited by membership guarantees (No. xxxxxx) and its governing documents are the
Memorandum and Articles of Association. MDBF is registered with the Charity Commission (No.
xxxxx).
Every member of Diocesan Synod is a member of MDBF for company law purposes and has a
personal liability limited to £1 under their guarantee as company members in the event of its being
wound up. The members of the Standing Committee of Diocesan Synod and Bishop’s Council
comprise the Board of Trustees of MDBF – they are its Directors under company law.
Decision-making structure
Diocesan Synod has delegated the following functions to the Board of Trustees:







Planning the business of Synod including the preparation of agendas and papers
Initiation of proposals for action by the Diocesan Synod and provision of policy advice
Transacting the business of the Diocesan Synod when not in session
Management of the funds and property of the Diocese
Preparation of annual estimates of expenditure
Advising on action needed to raise the income necessary to finance expenditure
Oversight of expenditure by bodies in receipt of Diocesan Synod’s funds against estimates of
expenditure approved by Diocesan Synod
 Advising Diocesan Synod of the financial aspects of its policy and on any other matters referred
to it
 Appointing members of committees or nominating members for election to committees, subject
to the directions of Diocesan Synod
 Carrying out any other functions delegated by Diocesan Synod.
Diocesan Annual Report and Financial Statements Guide - 90
The Board of Trustees has delegated responsibility for the day-to-day management of the company
to the Diocesan Secretary who is supported by a number of heads of departments and their staff.
Committee structure
There are a number of Diocesan Synod committees that, though not sub-committees of MDBF, can
influence the operations of MDBF.
Those following are statutory committees:
Buildings Committee, which is responsible for determining policy and making major decisions
concerning the management of parsonage houses in each benefice, including setting the policy for
buying, repairing, maintaining and disposing of all parsonage houses, team vicarages and houses
owned by XDBF.
Glebe Committee, which is responsible for determining policy and making major decisions
concerning the management of glebe property and investments for the benefit of the Diocesan
Stipends Fund of the Diocese.
Diocesan Pastoral Committee, which is responsible for the task of approving pastoral
reorganisation, taking account of available clergy numbers and making use of new patterns of
ministry.
Diocesan Advisory Committee, which advises on matters affecting churches and places of worship
such as the granting of faculties, architecture, archaeology, art and the history of places of worship,
the use and care of places of worship and their contents and the care of churchyards.
Mercia Diocesan Board of Patronage, which is constituted under the provisions of the Patronage
(Benefices) Measure 1986, is sole patron or joint patron of a number of benefices.
Redundant Churches Uses Committee, which is responsible for finding appropriate alternative uses
for churches which have been declared redundant.
In addition to the statutory committees, there are also the following committees:
[Refer to any additional committees at this point]
Bishop’s Council
The members of the Bishop’s Council are the Board of Trustees. Bishop’s Council consists of xx
ex officio members, including the Diocesan and xx Area Bishops and the two Archdeacons, xx
clergy elected by the house of clergy from among their number (on an Archdeaconry basis, xx per
Archdeaconry) and twelve lay persons elected by the members of the house of laity representing
deaneries (on an Archdeanery basis, xx per Archdeaconry) and a maximum of xx members
nominated by the Diocesan Bishop.
The MDBF has the following sub-committees, each of which have written terms of reference:
Finance Sub-Committee, which is responsible for considering the financial affairs of the Diocese.
Amongst other things, it draws up draft budgets for approval by the trustees prior to submission to
Diocesan Synod and monitors expenditure and income.
Diocesan Annual Report and Financial Statements Guide - 91
Audit Sub-Committee, which is responsible for assisting the trustees in the discharge of their
responsibilities for accounting policies, risk management, internal control and financial reporting,
including liaison with the auditors.
[Add other sub-committees as appropriate]
Appointment of trustees
Trustees are the members of the Bishop’s Council. See above for details of the appointment
process.
Trustees are given induction training when first appointed and receive ongoing training, as
appropriate. Some senior staff have job titles incorporating the title ‘Director’ but they are not
directors of the company for the purposes of company law.
Trustees’ responsibilities
Company law requires the trustees (in their capacity as directors) to prepare financial statements for
each financial year which give a true and fair view of the state of affairs of the company and of the
net incoming or outgoing resources of the company for that year.
In preparing those financial statements the trustees are required to:
 Select the most suitable accounting policies and apply them consistently;
 Make judgements and estimates that are reasonable and prudent;
 Follow applicable accounting standards and the SORP, subject to any material departures
disclosed and explained in the financial statements;
 Prepare the financial statements on the going concern basis unless it is inappropriate to presume
that the company will continue in business.
The trustees are responsible for keeping proper accounting records which disclose with reasonable
accuracy at any time the financial position of the company and to enable them to ensure that the
financial statements comply with the Companies Act 1985. They are also responsible for
safeguarding the corporate and trust assets of the company and ensuring their proper application
under charity law and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Related parties
General Synod, Church Commissioners and Archbishops’ Council
MDBF has to comply with Measures passed by the General Synod of the Church of England and is
required to make certain annual payments to the Archbishops’ Council towards the running costs of
the National Church. The stipends of the Diocesan and Area Bishops are borne by the Church
Commissioners and are reflected in the financial statements as costs funded by grants received
from the Church Commissioners.
Parochial Church Councils (PCCs)
MDBF is required by Measure to be custodian trustee in relation to PCC property, but the
Company has no control over PCCs, which are independent charities. The accounts of PCCs and
deaneries do not form part of these financial statements.
Diocesan Annual Report and Financial Statements Guide - 92
PCCs are able to influence the decision-making within MDBF and at Diocesan Synod level through
representations to those bodies and through the input of their Deanery Synods.
Subsidiary undertakings
MDBF has the following subsidiary undertakings:
[Insert names and functions of any subsidiary companies] – note, for simplicity ,the example
financial statements do not include subsidiaries.]
The profit / (loss) for 2006 for each of the subsidiaries was as follows:
A Ltd
B Ltd
C Ltd
Connected charities
The trustees consider the following to be connected charities:
Mercia Diocesan Board of Education - a registered charity, which has responsibility for xxx
Church schools across the Diocese, provides pastoral and professional support to all its schools and
has a particular commitment to enhancing the quality of provision for religious education,
collective worship and the spiritual, moral, social, and cultural development of all pupils.
Other connected charities with which MDBF co-operates in pursuit of its charitable objectives are:
……………..
Pension Scheme
MDBF is the sponsoring employer of the Mercia Diocesan Board of Finance Staff Retirement
Benefit Scheme. This is a pension fund for the benefit of employees of MDBF. Certain trustees of
the scheme are employees of MDBF. Costs of administration and secretarial services are borne by
MDBF.
Further details are contained in note xx to the financial statements.
[Give details of any other pension arrangements such as the Church of England Funded Pension
Scheme, the Church Workers’ Pension Scheme and the Teachers’ Superannuation Scheme.]
Risk management
The trustees confirm that the major risks, to which MDBF is exposed, as identified by the trustees
and staff, have been reviewed and that systems and procedures have been established to manage
those risks. The trustees delegate to the Audit Sub-Committee the task of ensuring that risks are
reviewed and managed as part of the risk management strategy. Sub-Committees have defined the
risks in their areas, reported on the measures in place to manage and monitor these risks and
implemented procedures and controls designed to minimise any potential impact on MDBF should
any of the risks materialise. A risk register has been compiled.
The Audit Sub-Committee review the risk register periodically and reports to trustees whether it is
satisfied with its findings and makes recommendations as to areas for further work in subsequent
Diocesan Annual Report and Financial Statements Guide - 93
years. The trustees review the risk register at least annually as part of the corporate risk
management strategy.
4.
Objectives and activities
Aims and objectives
MDBF aims to promote, facilitate and assist with the work and purposes of the Church of England
for the advancement of the Christian faith in the Diocese of Mercia and elsewhere.
[Explain here the strategic plan for the coming years]
MDBF’s strategy for achieving its objectives is to maintain the sound financial structure needed to
enable it to continue supporting the clergy through the payment of stipends, managing parsonages
and other ministerial housing and also by providing other facilities and resources in support of the
ministry of both clergy and lay people in parishes across the Diocese.
The key activities may be summarised as:
-
Contributions for national church institutions (mainly by grant support)
-
Mission and Ministry in the Parishes (includes all clergy training, housing, stipends, pension
and all other expenditure supporting parish based ministry)
-
Education funding (includes support services and capital expenditure support for schools)
-
Specific Diocesan Projects
-
Provision of Diocesan Retreat House
Statutory functions
MDBF has responsibility for the management of glebe property and investments to generate
income to support the cost of stipends.
It is the Diocesan Authority for parochial and other trusts and incorporates the functions and
responsibilities of the Diocesan Parsonages Board.
The trustees are custodian trustees in relation to PCC property.
Grant-making (beneficiary-selection) policy
Grants are made to the National Church to cover a proportion of its central costs and also to cover
the cost of training for ministry (See note to the financial statements). Grants are paid to other
connected charities and to other charitable projects which appear to the Board to support the
furtherance of MDBF’s objects. (See Note 2.b to the financial statements).
5.
Achievements and performance
Plans and achievements in 2006
During 2006 MDBF planned to:
 Achieve at least a financial break-even, while increasing clergy stipends in line with inflation
 Review the Parish Share scheme………….
Diocesan Annual Report and Financial Statements Guide - 94
 Reduce the average increase in parish share across the Diocese to 5% with a view to continuing
a downward trend in increases in future years.
During the year MDBF has:




Increased net unrestricted incoming resources, from around nil to £240,000
Increased clergy stipends in line with ……. formula
Reviewed the mechanism for calculating Parish Share contributions to take account of
Reduced the overall rate of increase in the Parish Share for 2006 to 5%.
Operational performance
MDBF received 95% of Parish Share due for the year and has met all of its financial obligations to
continue resourcing diocesan needs as these arise, including the support of the ministry, provision
of well-maintained houses for the clergy, national church responsibilities and enriching and
facilitating many other aspects of church life throughout Mercia such as retreats and cultural and
spiritual gatherings..
In spite of increasing costs it has reduced the rate of increase in Parish Share for 2006.
Investment performance
Overall performance
Investments are held in both glebe and general funds. The total value of investments (excluding
short-term cash deposits) at 31 December 2006 was £5.2m (2005: £4.6m) and the total return on
investment was X% (2005: Y%).
Glebe investments
£1.8 million of MDBF’s investments are in glebe funds, primarily to generate a sustainable income
to continue funding clergy stipends.
Agricultural, commercial and residential land and buildings (including school land) were valued at
£2.1m at 31 December 2006 (2005: £2.05m) – an increase of 2.4 % over the year. Rents receivable
amounted to £171,000 (2005: £160,000) – an income yield of 8.1% (2005: 7.8%). Total return at
10.5% compared with the benchmark return of X% for such long-term investment assets.
Investment in equity and fixed interest funds were valued at £3.1m at 31 December 2006 (2005:
£2.8m) – an increase of 9% over the year. The unrealised gain in the value of investments during
the year amounted to £258,000, an increase of 9.3% on the equity portfolio. Dividends and interest
receivable amounted to £313,000 (2005: £300,000) – a yield of around 6.8%, which is in line with
our benchmarks, as was the total return on investment securities of 15.8%.
General fund investments
Other investments are held on behalf of a number of endowments, restricted and general funds. The
policy with these investments is to safeguard capital and to achieve capital growth. Investment in
equity and fixed interest funds were valued at £Xm at 31 December 2006 (2005: £Ym). Dividends
and interest receivable amounted to £Am (2005: £Bm) – a yield of q% (2005: p%).
Diocesan Annual Report and Financial Statements Guide - 95
Equity loans
Equity loans are made to retired clergy and clergy spouses to enable them to purchase property on a
shared equity basis. Total Value Linked Loans advanced at 31.12.06 amounted to £475,000.
External factors affecting performance
Every effort is made by the Diocese to hold down increases in the Parish Share, which is
contributed by the Deaneries and PCCs towards the ministry and other costs of the Diocese. A
large part of the costs are staff salaries and building maintenance costs, which both tend to increase
at a rate in excess of the Retail Price Index. In addition, the Diocese is having to increase
contributions to the clergy and staff pension schemes.
The Diocese of Mercia is relatively strong, financially, compared with many other dioceses and is
expected to take a proportionately larger share of National Church costs than the less wellresourced dioceses.
6.
Financial review
Overall financial position
Income before revaluation adjustments totalled £6.97m (2005: £6.46m) and expenditure amounted
to £6.74m (2005: £6.44m).
The Statement of Financial Activities (SOFA) for the year shows net incoming resources of
£228,000m (2005: net incoming resources of £18,000) before net gains and losses on the
revaluation of investments and fixed assets and on the sale of investment assets.
After revaluation adjustments, the net movement in funds amounted to £1.46m (2005: £1.39m).
During the year, total fund balances increased from £43.8m to £45.3m
There was an overall net cash outflow of £770,000 (2005: £73,000).
Review of the statement of financial activities
[Comment on any significant aspects of the SOFA]
Principal Funding Sources
Around 63% of the income of the DBF comes from the Parish Share and 12% from National
Church Selective Allocations.
Review of the financial position
The balance sheet has strengthened during the year due to our achieving a surplus of income over
expenditure of nearly £0.5 million and revaluation gains of £1.0 million from the continuing
improvement in the investment markets. Net cash flow however has been negative due to further
investment in property for use by the Diocese.
Financial sustainability
[Comment on financial sustainability and any action being taken or planned]
Diocesan Annual Report and Financial Statements Guide - 96
Going concern
After making enquiries the Trustees are satisfied that MDBF has adequate resources to continue to
operate as a going concern for the foreseeable future and have prepared the financial statements on
that basis.
Investment policies
MDBF’s investment policies are based on two key policies:
Ethical investment - this includes ensuring that investments are held in companies which have high
standards of corporate governance and act in a responsible way towards stakeholders.
Long-term responsibilities - the trustees are aware of their long-term responsibilities in respect of
endowed funds and as a result follow a correspondingly prudent approach to investment decisions.
Investment policy for long-term funds is aimed primarily at generating a sustainable income with
due regard to the need for the preservation of capital value and the possible need to realise
investments to meet operational needs. The glebe investments are held for the purpose of raising
income to achieve the maximum contribution possible to clergy stipends on an ongoing basis.
Unrestricted and restricted fund investments are invested to balance income, liquidity and the
maintenance of capital.
Glebe investments
Glebe investments are held in agricultural land, commercial and residential land and buildings,
equities and fixed interest securities.
Glebe financial investments are split between investments in equities c% (2005: c%) through
investment funds to spread risk, and fixed interest securities, d% (2005: d%).
Unrestricted fund investments
Funds which may be needed for working capital in the short term are held as deposits with the
Central Board of Finance.
Reserves policy
MDBF has considerable responsibilities including the remuneration of over (number ) parochial
stipendiary clergy, the upkeep of approximately (number) houses and the employment of some
(number) full or part time staff. The target free reserves (net of fixed assets and investments) is
currently set at an amount equivalent to three months’ gross expenditure from unrestricted funds
estimated at £1.6m. At 31 December 2006, MDBF’s free reserves (i.e. excluding those tied up in
fixed assets were £1.4m (per note 27 to the financial statements). The trustees intends to continue
building up free reserves to that level within its overall aim of balanced budgets for long-term
sustainability.
7.
Plans for future periods
The trustees will continue to set annual budgets on a break-even basis (subject to building up free
reserves to target level and seek to hold down Parish Share increases in order to allow funds to be
spent on mission activity. The ongoing objective is to resource diocesan needs, as determined by
Synod and informed by local and national Church institutions.
Diocesan Annual Report and Financial Statements Guide - 97
8.
Funds held as custodian trustee for others
The Board is custodian trustee for trust investment assets with a market value of £xxx m at 31
December 2006. Detailed certificates of holdings were sent to parishes and other managing trustees
of the respective charities at that date. The Board also holds Parochial Church Council (PCC) as
custodian trustee property. Each PCC is a separate charity. The assets are held separately from
those of MDBF.
9.
Appointment of auditors
A resolution to reappoint Ticket & Co as auditors to the company and to authorise the Trustees to
fix their remuneration will be proposed at the Annual General Meeting.
By Order of the Board
………………………
A Frank
Diocesan Secretary
……………………..
J Archer
Chair
Reference and administrative details of the Diocese of Mercia
In accordance with the Companies Act 1985 and the Statement of Recommended Practice: Accounting
and Reporting by Charities issued in March 2005 (SORP 2005), the trustees (for the purposes of charity
law) and directors (for the purposes of company law) during the year and as at the date of signing follow:
President (ex officio)
The Rt Revd. John
Chair
Mrs
Vice-Chairman
Mr
Archdeacons (ex officio)
The Ven (Archdeacon of Mercia)
The Ven (Archdeacon of Palchester)
Elected
Mrs
The Revd Canon
The Revd
The Rev. Canon
Mr
Mr
Nominated by the Bishop
Mr
Mrs
The Revd Canon
Mr
Canon
Diocesan Annual Report and Financial Statements Guide - 98
Secretary
Mr
Registered Office
10 Castle Street
Mercia
MA1 1PG
Telephone
Facsimile
01903
01903
Company registration number
xxx xxx (England & Wales)
Charity registration number
xxx xxx
Auditors
Ticket LLP
Mercia
MA1 1SL
Bankers
Bank plc
Allsingham
MA10 1NH
Solicitors and Registrars
Walnut & Co
Mercia
MA1 1PW
Investment Managers:
Listed Investments
Glebe Property Agents
CCLA Investment Management Ltd
80 Cheapside
London
EC2V 6DZ
Speed & Caring
Allsingham
MA10 1HT
Diocesan Annual Report and Financial Statements Guide - 99
Appendix VI: Model Summary Information Return
Q.1: Aims
MDBF aims to promote, facilitate and assist with the work and purposes of the Church of England for the
“cure of souls” by the advancement of the Christian faith in the Diocese of Mercia and elsewhere.
Q.2a: Who benefits?
The clergy and laity of the Church of England in the Diocese of Mercia together with all those to whom
they minister in the parishes of the Diocese.
Q.2b: How do you respond to their needs? How do they influence MDBF developments?
Through reciprocal interaction via the Church institutions at Diocesan, Deanery and Parish levels.
Q.3a: Strategy (medium/long-term key elements)
MDBF’s strategy for achieving its objectives is to maintain the sound financial structure needed to enable
it to continuing supporting the clergy through the payment of stipends, the management of parsonages
and other ministerial housing and also providing other facilities and resources in support of the ministry
of both clergy and lay people in parishes across the Diocese.
Q.3b: Its success-measurement
Financial performance within a balanced budget in line with the current Strategic Plan
Q.4: Objectives & Achievements for 2006
Objective:
Achievement:
Achieve at least a financial break-even, while
increasing clergy stipends in line with inflation
Corporate net income up from around zero to
£240,000 and clergy stipends kept in line with
inflation
Review the Parish Share scheme workings
Review completed as planned
Reduce the average increase in parish share across the
Diocese to 5% with a view to continuing a downward
trend in increases in future years.
Parish Share increase contained at 5% overall
across the Diocese
Diocesan Annual Report and Financial Statements Guide - 100
Q.5a: Income Sources 2006
% of total
£000
78.5%
5,485
2. Activities for generating funds
0.5%
30
3. Investment income
7.0%
484
11.5%
799
2.5%
167
100%
6,965
1.Voluntary income (Parish Share, Archbishops’ Council and other)
4. Income from charitable activities
5. Other incoming resources
Total
Q.5b: The Charity’s most significant activities in the year and their costs
Charitable activities
Cost £000
*Resourcing ministry and mission
5,807
Contributions to Archbishops’ Council
362
Education
114
Diocesan Retreat activities and Regeneration projects
359
Total expenditure on charitable activities
6,642
Total expenditure
6,737
Explanatory comments
*comprises £3.6m for Clergy Stipends, £1.0m for Clergy Housing costs and £1.2m Costs of supporting
Church ministry in parishes
Q.5c: The charity’s three main fundraising activities in the year and their proceeds and costs
Fundraising activity
Proceeds £000
Costs £000
We do not carry out fundraising activities
Total voluntary income and activities for generating funds
Total cost of generating voluntary income and fundraising
trading
5,515
48
Explanatory comments
The Parish Share, the primary component of the above total, represents voluntary income in the form of
assessed contributions from the parishes to enable Mercia DBF to support the Church’s ministry
throughout the diocese regardless of local inequalities in financial means.
Diocesan Annual Report and Financial Statements Guide - 101
Q.6: Financial Health at the year-end
Mercia DBF moved into 2007 in a stronger financial position than ever after achieving by dint of strict
financial management a surplus of income over expenditure amounting to almost £0.5m and investment
gains of £1.0m. At the year-end our free reserves stood at £1.4m against a target level of £1.6m. MDBF’s
endowments now total £40m in the form of suitable properties for Church use throughout the diocese and
a portfolio of well-diversified investment assets to help finance its ongoing commitment to provide for
Clergy stipends and a variety of Church ministry projects out of voluntary contributions from parishes
(the Parish Share) and also, for various specified purposes as the need arises, from the Archbishops’
Council - supplemented by income from other sources.
Q.7a: Impact of this year’s performance on current medium/long-term strategy [Q.3a]
MDBF’s 2006 performance is in line with its current strategic plan and encourages us to continue with the
same strategy into 2007 and beyond.
Q.7b: Main annual objectives for 2007
Within a balanced budget, to meet all existing commitments to support the Church’s ministry in Mercia,
and subject to reserves constraints to respond to any new needs as they arise.
Q.8: How are appropriate and effective governance arrangements ensured?
The Board regularly reviews the appropriateness of the company’s existing management structures with a
view to compliance with best practice in charity and corporate governance, taking advice on any specific
issues arising from time to time, has a policy of providing appropriate training for all new trustees to
enable them to know and fulfil their obligations under trust and company law, and through a regular
schedule of Board Meetings throughout the year exercises effective oversight in respect of the
management of all aspects of the company’s activities.
Diocesan Annual Report and Financial Statements Guide - 102
Appendix VII: Guidelines for the SOFA
Incoming Resources
Incoming resources from generated funds
Voluntary income
This would include income from parish share/quota, grants (e.g. All Churches Trust), donations, legacies
and appeal income. It would also include income from the Archbishops’ Council such as Selective
Allocations and the Parish Ministry Fund and any general grants (but see also Income From Charitable
Activities below).
It is recommended that this section be divided into three:



Parish share (quota etc);
Money from the Archbishops’ Council;
Other donations, legacies and appeal income etc.
Activities for generating funds
Very little of DBF income is likely to fall into this category unless specific fund-raising events are held.
However, rental income from temporarily empty parsonages should be included (SORP 137 (e)).
Investment income
This is fairly self explanatory and would include glebe income, dividends and interest. Any management
fees deducted at source should be grossed up if material.
Incoming resources from charitable activities
This would include such items as fees (assigned and non-assigned) and chaplaincy income. Income from
the National Church by way of stipend support such as the annual allocation, guaranteed annuities and
pension subsidies are closely linked to the charitable activity of supporting parish ministry by payment of
stipends and therefore should be included here (SORP 143 & 145 (e)).
Other income from undertaking charitable activities could include fees from training courses, printing
parish newsletters etc, income from the diocesan retreat house.
Other incoming resources
Gains on the sale of parsonages would be included here. Other items could be the proceeds from the sale
of closed schools or the DBF’s share of the proceeds from the sale of redundant churches.
Resources Expended
Most of the expenditure of DBFs will be on Charitable Activities. Exceptions will include any Costs of
Generating Funds which should be self explanatory such as glebe agents’ fees and investment
management costs. The other exception will be Governance Costs (see below).
Diocesan Annual Report and Financial Statements Guide - 103
Analysis of Charitable Activities
The main areas of charitable activity should be shown on the face of the SOFA (SORP 191). These will
include expenditure for the National Church, the costs of supporting ministry within the diocese (stipends,
clergy housing and other costs such as ongoing clergy and lay training, the Board for Social
Responsibility, the Diocesan Advisory Committee etc), support for Church Schools in the diocese and,
possibly, other areas such as overseas support where material.
In the notes to the SOFA there should be an analysis of the costs of charitable activities between direct
costs, grant funding of third parties and support costs (SORP 194).
Direct Costs
This will include payments for stipends and housing for clergy. Removal and resettlement grants for
clergy should also be included under direct costs. Most of the costs of diocesan Boards and Committees
will also be included here unless they are allocated support costs (see below).
Grant Funding of Activities
Payments to the National Church would be one example of grant funding. Similarly grants paid to
parishes to enable them to carry out the work of the Church are payments to third parties.
Support Costs
Support costs are defined in the SORP as “those costs that, whilst necessary to deliver an activity, do not
themselves produce or constitute the output of the charitable activity” (SORP 164). They are likely to
include all the “management and administration” costs incurred in the diocesan offices. The SORP
requires support costs to be allocated across the different activities of the DBF and a breakdown given in
the notes to the accounts (SORP 168).
Governance Costs
The type of expenditure to be included under governance costs is shown in the SORP. For DBFs these
will include the costs of DBF meetings and, probably, the costs of Bishop’s Council and Synod meetings
as these would be involved in the “strategic planning processes that contribute to future development of
the charity” (SORP 210).
Diocesan Annual Report and Financial Statements Guide - 104
Appendix VIII: Model Statement of Financial Activities,
Income & Expenditure Account, Balance Sheet, Cash
Flow Statement and Related Notes
MERCIA DIOCESAN BOARD OF FINANCE
STATEMENT OF FINANCIAL ACTIVITIES FOR THE YEAR ENDED 31 DECEMBER 2006
Unrestricted funds
Designated
General
Note
£000
£000
Restricted
funds
Endowment
funds
Total funds
2006
£000
£000
£000
Total funds
2005
(restated)
£000
Incoming resources
Incoming resources from
generated funds:
Voluntary income
Parish contributions
Archbishops' Council
Other
Activities for generating funds
Investment income
85
-
25
120
-
4,422
951
112
30
484
4,200
874
78
20
460
412
-
-
145
242
-
412
145
242
458
72
228
42
-
125
-
167
65
85
657
-
6,965
6,455
2
3
4
5
6
4,422
866
87
30
364
Incoming resources from
charitable activities
Statutory fees, chaplaincy and other income
Grants for Regeneration Project
Diocesan Retreat House
7
Other incoming resources
8
6,223
Total incoming resources
Resources expended
Costs of generating funds:
Cost of generating voluntary income
Investment management costs
9
10
48
15
-
-
-
48
15
45
13
Charitable activities
Contributions to Archbishops' Council
Resourcing ministry and mission
Education
Diocesan projects
Diocesan Retreat House
11
12
13
14
362
5,782
-
-
25
114
132
227
-
362
5,807
114
132
227
356
5,581
117
72
216
Governance costs
15
29
-
-
-
29
27
Other resources expended
16
3
-
-
-
3
10
Total resources expended
17
6,239
-
498
-
6,737
6,437
(16)
85
159
-
228
18
-
(224)
-
159
(224)
228
18
875
131
1,003
258
1,250
176
(30)
(56)
Net incoming resources before transfers
-
Gross transfers between funds
18
256
(32)
Net incoming resources before other
recognised gains and losses
19
240
53
128
75
-
52
(30)
-
-
-
413
53
211
782
1,459
1,388
Reconciliation of funds
Total funds at 1 January 2006
3,075
127
1,276
39,370
43,848
42,460
Total funds at 31 December 2006
3,488
180
1,487
40,152
45,307
43,848
Other recognised gains (losses)
Gains on revaluation of
fixed assets for charity's own use
Gains on investment assets
Actuarial loss on defined
benefit pension scheme
Net movement in funds
20
Diocesan Annual Report and Financial Statements Guide - 105
MERCIA DIOCESAN BOARD OF FINANCE
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2006
2006
£000
Total incoming resources
2005
£000
6,965
Capital funds converted into income
6,455
224
-
Gross income
7,189
6,455
Gross expenditure
6,737
6,437
452
18
-
55
452
73
Net income before investment fund disposals
Realised gain on disposal of investments
Net income for the year
All income and expenditure relates to continuing activities
STATEMENT OF HISTORICAL COST PROFITS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 2006
2006
£000
Net income for the year
Realisation of revaluation gains of previous years
Historical cost surplus for the year
2005
£000
452
73
47
18
499
91
Diocesan Annual Report and Financial Statements Guide - 106
MERCIA DIOCESAN BOARD OF FINANCE
BALANCE SHEET AS AT 31 DECEMBER 2006
Note
Fixed assets
Tangible assets
Investments
Current assets
Stock and work-in-progress
Debtors
Investments
Cash at bank and in hand
Creditors : amounts falling due within
one year
23
24
25
26
27
Net current assets
Total assets less current liabilities
Creditors : amounts falling due after more
than one year
27
Net assets excluding pension liability
Defined benefit pension scheme liability
Net assets after pension liability
The funds of the charity:
Endowment funds
Restricted income funds
Unrestricted income funds:
General funds
Designated funds
Pension reserve
Total funds
2006
£000
2005
£000
38,745
5,240
36,932
4,807
43,985
41,739
18
1,311
1,685
815
15
874
1,660
1,585
3,829
4,134
731
348
3,098
3,786
47,083
45,525
871
802
46,212
44,723
905
875
45,307
43,848
40,152
1,487
39,370
1,276
4,393
180
3,950
127
4,573
(905)
4,077
(875)
3,668
3,202
45,307
43,848
28
Included in the above funds are revaluation reserves, attributable to the unrestricted funds, amounting to £2,404,000 (2005 £2,278,000) - see note 29
The notes on pages XX to XX form part of these financial statements. The accounts were approved by the Board of
Directors on XX XXXX 2007 and are signed in behalf of the Board by
Diocesan Annual Report and Financial Statements Guide - 107
MERCIA DIOCESAN BOARD OF FINANCE
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006
2006
£000
Net incoming resources before transfers
Depreciation
Net gain on disposable of tangible fixed assets
Interest and dividends receivable
Interest payable
(Increase) decrease in stock
(Increase) decrease in debtors
Increase in creditors
2005
£000
228
38
(39)
(313)
47
(3)
(353)
331
18
35
(55)
(300)
29
2
101
54
Net cash outflow from operating activities
(64)
(116)
Returns on investment and servicing of finance
Interest and dividends received
Interest paid
313
(47)
300
(39)
266
261
(1,361)
552
(200)
(212)
128
(845)
378
(146)
196
(138)
176
(1,093)
(379)
(891)
(234)
186
(65)
247
(86)
121
161
(770)
(73)
Capital expenditure and financial investment
Expenditure on tangible fixed assets
Sale of tangible fixed assets
Purchase of investments
Sale of investments
Loans advanced
Loans repaid
Net cash outflow before financing
Financing
Loans advanced
Loans repaid
Decrease in cash
Diocesan Annual Report and Financial Statements Guide - 108
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS [wording in brackets should be deleted if not applicable to the reporting DBF]
1.
Principal accounting policies
The financial statements comply with applicable accounting standards and the Statement of Recommended
Practice “Accounting and Reporting by Charities” published in March 2005, as interpreted by the Diocesan
Annual Report and Financial Statements Guide [except where otherwise disclosed and explained by reference to
the DBF’s own particular circumstances]. A summary of the material accounting policies and estimation
techniques adopted follows.
Basis of preparation
The Board prepares its annual financial statements on the basis of historical cost [adjusted for the revaluation of
land and buildings] and the carrying of investment assets (including investment properties) at market value. The
financial statements are drawn up in accordance with the requirements of the Companies Act 1985 except where
the special nature of the company’s operations has required adaptation of the required formats as required or
allowed by Section 226(5) of the Act.
Fund Balances are split between general, designated, restricted and endowment funds.

General funds are the company’s corporate funds. Undesignated general funds are freely available for any
purpose within the company’s objects, at the discretion of the Board.

Designated funds are those funds set aside out of general funds by the Board for a specific purpose over
whose use and purpose the Board has discretion.

Restricted funds are income funds subject to conditions imposed by the donor as specific terms of trust, or
else by legal measure.

Endowment funds are those held on trust to be retained for the benefit of the charity as a capital fund. In the
case of the endowment funds administered by the Board (Stipends Fund Capital, Parsonage Houses and
Schools), there are discretionary powers to convert capital into income and, as a result, these funds are
classified as expendable endowment. Endowment funds where there is no provision for expenditure of capital
are classified as permanent endowment.
“Special trusts” (as defined by the Charities Act 1993) and any other trusts where the company acts as trustee
and controls the management and use of the funds, are included in the company’s own financial statements as
charity branches, subject to the Charity Commission’s determination of their accounting status. [Subsidiary
undertakings not so accounted for are included in group consolidated accounts (if prepared). The company’s
interests in any other undertakings under shared control are included in the company or consolidated accounts
accordingly.]
Trusts where the Board acts merely as custodian trustee with no control over the management of the funds are
not included in the financial statements but are disclosed in the trustees’ annual report.
Incoming resources
All incoming resources are included in the Statement of Financial Activities (SOFA) when the Board is legally
entitled to them as income or capital respectively, ultimate receipt is reasonably certain and the amount to be
recognised can be quantified with reasonable accuracy.
Diocesan Annual Report and Financial Statements Guide - 109
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
1.
Principal accounting policies - continued
Incoming resources (continued)
Grants received which are subject to pre-conditions for entitlement or use specified by the donor which have not
been met at the year end are included in creditors to be carried forward to the following year.
In respect of parochial contributions, only contributions received during the year or within one month after the
financial year end are included in the financial statements.
The Stipends Fund Capital account is governed by the Diocesan Stipends’ Fund Measure 1953, as amended,
and the use of the income is restricted for clergy stipends. However, the income is fully expended within the year
of receipt and the legal restrictions, therefore, are satisfied. It is on this basis that the income and the (normally
much larger) related expenditure are both included in the unrestricted column of the Statement of Financial
Activities for the sake of greater clarity and simplicity in financial reporting.
Resources expended
Expenditure is included on the accruals basis and has been classified under headings that aggregate all costs
related to the SOFA category.
Grants payable are charged in the year when the offer is conveyed to the recipient except in those cases where
the offer is conditional on the recipient satisfying performance or other discretionary requirements to the
satisfaction of the Board, such grants being recognised as expenditure when the conditions attaching are
fulfilled. Grants offered subject to such conditions which have not been met at the year end are noted as a
commitment, but not accrued as expenditure.
Where costs cannot be directly attributed to particular headings they have been allocated or apportioned to
activities on a basis consistent with use of the resources. Central support costs are apportioned on the basis of
the estimated usage of resources at Diocesan Church House. The apportionment in 2006 can be summarised as
follows:
2% - Cost of generating voluntary income
72% - Resourcing ministry and mission
13% - Education
7% - Diocesan projects
4% - Other charitable activities
2% - Governance
Pensions
The Board operates an occupational pension scheme through the Ecclesiastical Insurance Group, which is a
defined benefit scheme based on final salary. It also operates a stakeholder scheme and contributes to personal
pension schemes. A separate pension scheme for stipendiary clergy is administered by the Church of England
Pensions Board and is a defined benefit scheme but the Board is unable to identify its share of the underlying
assets and liabilities of the scheme.
Diocesan Annual Report and Financial Statements Guide - 110
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
1.
Principal accounting policies - continued
Investments
Investments include agricultural holdings, commercial and residential properties, and investment securities. They
are valued as at 31 December each year.
Properties for the charity’s own use
All these properties are included at the Board’s best estimate of market value [except for those of any schools
under Board control (see below), which are included at cost.] It is the Board’s policy to carry out a formal
valuation of these revalued properties every 5 years and to take advice annually as to any material movements
in value. The directors have been advised that values have increased by an average of 3.5% during the year
and this has been reflected in these accounts. The position will be reviewed again at the next year end. The last
formal valuation was carried out as at 31 December 2004.
Capital expenditure on non-controlled schools
The Board contributes to the improvement, extension and building of schools not under its control by making
grants to the school governors concerned, and these are shown as such in the Statement of Financial Activities.
The Board does not recognise the value of the company’s reversionary interest in the assets of closed schools
until the ultimate proceeds of disposal have been received.
Depreciation on freehold and leasehold properties for the charity’s own use
Depreciation is not provided on buildings as any provision (annual or cumulative) would not be material due to
the very long expected remaining useful economic life in each case, and because their expected residual value
(by reference to prices ruling at the time of acquisition of the capitalised asset in each case) is not materially less
than their carrying value. The Board has a policy of regular structural inspection, repair and maintenance, which
in the case of residential properties is in accordance with the Repair of Benefices Buildings Measure 1972 and
properties are therefore unlikely to deteriorate or suffer from obsolescence. In addition, disposals of properties
occur well before the end of their economic lives and disposal proceeds are usually not less than their carrying
value. The Directors perform annual impairment reviews in accordance with the requirements of FRS 15 and
FRS 11 to ensure that the carrying value is not more than the recoverable amount.
Depreciation on other tangible fixed assets
Depreciation is provided in order to write off the cost (less any ultimate disposal proceeds at prices ruling at the
time of the asset’s acquisition) of other fixed assets over their currently expected useful economic lives at the
following initial rates:Motor vehicles
25% per annum straight line
Computers
33.3% per annum straight line
Furniture and office equipment
20% per annum straight line
Assets costing less than £1,000 are not capitalised
Diocesan Annual Report and Financial Statements Guide - 111
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
1.
Principal accounting policies - continued
Parsonage Houses
The Board has followed the requirements of Financial Reporting Standard No 5, in its accounting treatment for
benefice houses (parsonages). FRS 5 requires the accounting treatment to follow the substance of
arrangements rather than their strict legal form. The Board is formally responsible for the maintenance and
repair of such properties and has some jurisdiction over their future use or potential sale if declared redundant,
but in the meantime legal title and the right to beneficial occupation is vested in the incumbent. The Directors
therefore consider the most suitable accounting policy to be to capitalise such properties as expendable
endowment assets and to carry them at their estimated current market value on the basis described above.
Gains and losses on fixed assets
Realised gains and losses on non-investment properties are included within net incoming resources for the year.
Unrealised gains and losses on properties are included as part of other recognised gains and losses together
with both realised and unrealised gains and losses on investment assets.
Diocesan Annual Report and Financial Statements Guide - 112
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
Unrestricted funds
General
Designated
£000
2.
Parish contributions
Parish share
Current year's allocation
Shortfall in contributions
Arrears for previous years
Other parish contributions
£000
Restricted
funds
Endowment
funds
Total funds
2006
£000
£000
£000
Total funds
2005
(restated)
£000
4,604
(259)
-
-
-
4,604
(259)
4,346
(243)
4,345
52
-
-
-
4,345
52
4,103
65
4,397
25
-
-
-
4,397
25
4,168
32
4,422
-
-
-
4,422
4,200
866
-
85
-
-
866
85
790
84
866
85
-
-
951
874
55
32
-
-
25
-
55
32
25
52
26
-
87
-
25
-
112
78
30
-
-
-
30
20
30
-
-
-
30
20
184
99
81
-
20
10
90
-
204
109
171
192
108
160
364
-
120
-
484
460
378
-
-
-
378
359
10
24
-
-
-
10
24
80
19
412
-
-
-
412
458
42
-
-
125
-
42
125
65
-
42
-
125
-
167
65
48
-
-
-
48
45
48
-
-
-
48
45
15
-
-
-
15
13
15
-
-
-
15
13
Total parish share receipts represent
95.5% of the allocation (2005 - 95.9%)
3.
4.
5.
6.
7.
8.
9.
Voluntary Income from
Archbishops' Council
Selective allocation
Parish Mission fund
Other voluntary income
Ecclesiastical Insurance Group
Donations
Legacies
Income from activities for
generating funds
Rental income from parsonages
Investment income
Dividends receivable
Interest receivable
Rents receivable
Incoming resources from
charitable activities
Statutory fees and chaplaincy income
Church Commissioners Guaranteed annuities
Miscellaneous income
Other incoming resources
Gain on disposal of properties
Proceeds of sale of redundant church
Cost of generating voluntary income
Fund-raising expenditure
10. Investment management costs
Glebe agent's fees
Diocesan Annual Report and Financial Statements Guide - 113
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
Unrestricted funds
General
Designated
£000
11. Contributions to Archbishops' Council
Training for ministry
National Church responsibilities
Grants and provisions
Mission Agency pension contributions
Retired clergy housing costs (CHARM)
Pooling of ordinand candidates' costs
12. Expenditure on resourcing ministry
and mission
Parish ministry :
Stipends and national insurance
Pension contributions
Housing costs
Removal, resettlement and other grants
Other expenses
Support for ministry
13. Expenditure on education
Church Schools:
Administration
Grants
14. Expenditure on Diocesan projects
Regeneration project
15. Governance costs
Audit fees
Professional fees for trustees
Preparation of statutory returns etc
Diocesan Synod expenses
16. Other resources expended
Loss on sale of fixed assets
£000
Restricted
funds
Endowment
funds
Total funds
2006
£000
£000
£000
Total funds
2005
(restated)
£000
142
136
20
10
42
12
-
-
-
142
136
20
10
42
12
139
134
19
9
39
16
362
-
-
-
362
356
2,824
812
848
71
42
-
-
-
2,824
812
848
71
42
2,715
782
814
80
37
4,597
1,185
-
25
-
4,597
1,210
4,428
1,153
5,782
-
25
-
5,807
5,581
-
-
78
36
-
78
36
75
42
-
-
114
-
114
117
-
-
132
-
132
72
-
-
132
-
132
72
12
3
6
8
-
-
-
12
3
6
8
11
3
6
7
29
-
-
-
29
27
3
-
-
-
3
10
3
-
-
-
3
10
17. Analysis of resources expended
including allocation of support costs
Cost of generating voluntary income
Investment management costs
Contributions to Archbishops' Council
Resourcing ministry and mission
Education
Diocesan projects
Other charitable activities
Governance costs
Other resources expended
Activities
undertaken
directly
£000
42
15
362
5,570
36
82
213
24
3
Grant
funding of
activities
£000
36
26
-
6,347
62
Support
costs
£000
TOTAL
2006
£000
6
237
42
24
14
5
-
48
15
362
5,807
114
132
227
29
3
328
6,737
Diocesan Annual Report and Financial Statements Guide - 114
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
18. Analysis of transfers between funds
Unrestricted funds
General
Designated
£000
£000
Parsonage transferred to General Fund
on pastoral re-organisation
Allocation from Parish Mission fund
Restricted
funds
£000
Endowment
funds
£000
Total
2006
£000
224
32
(32)
-
(224)
-
-
256
(32)
-
(224)
-
19. Net incoming resources for the year
These are after charging:
2006
£000
Depreciation
Auditors' remuneration
2005
£000
38
12
35
11
20. Summary of fund movements
Balances at
1 January
2006
£000
Unrestricted funds
General
Stipends fund income
Designated
Restricted funds
Pastoral account
Church Schools
Diocesan Retreat House
Diocesan Regeneration project
Legacies
Incoming
resources
£000
Outgoing
resources
£000
Transfers
£000
Gains and
losses
£000
Balances at
31 December
2006
£000
3,075
127
4,695
1,528
85
(4,711)
(1,528)
-
256
(32)
173
-
3,488
180
3,202
6,308
(6,239)
224
173
3,668
69
285
828
22
72
125
120
242
145
25
(25)
(114)
(227)
(132)
-
-
52
-
169
343
843
35
97
1,276
657
(498)
-
52
1,487
5,050
32,423
1,762
-
-
(224)
-
176
746
84
5,226
32,945
1,846
Endowment funds
Expendable endowment
Stipends fund capital
Parsonage houses
Church schools
Permanent endowment
Millsborough Bequest
Total funds
135
-
-
-
-
39,370
-
-
(224)
1,006
40,152
43,848
6,965
-
1,231
45,307
(6,737)
135
21. Directors' remuneration and expenses
No remuneration has been paid to any Director in their capacity as directors (2005 - £NIL).
During the year the Board made contributions to the Church Commissioners at the standard rate agreed by Diocesan
Synod towards the stipends, national insurance and pension contributions of the licenced clergy who are directors
of the Board and provided houses, including the payment of council tax and maintenance costs, as part of normal
clergy remuneration. Directors were reimbursed for travel, subsistence and incidental costs incurred in undertaking their
ministerial activities totalling £11,780 (2005 - £11,476).
Diocesan Annual Report and Financial Statements Guide - 115
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
22. Employee details
The average number of employees, based on full-time equivalents, were as follows:
2006
no
Resourcing ministry
Support for parish ministry
Education
Regeneration project
Diocesan Retreat House
2005
no
17
2
4
7
16
2
2
7
30
27
Staff costs were as follows:
£000
Gross salaries
Social Security costs
Pension contributions
£000
738
49
74
645
45
65
861
755
The number of employees whose
emoluments exceeded £50,000
were as follows:
£50,000 - £60,000
1
-
Parochial stipendiary clergy are not employees of the Board of Finance and therefore
their stipends, pensions and social security costs are not included in this note.
23. Tangible assets
Unrestricted
Property
Office
equipment
£000
£000
Restricted
Retreat
house
£000
Endowment funds
Parsonages Glebe team
vicarages
£000
£000
TOTAL
£000
At cost or valuation
At 1 January 2006
Additions
Disposals
Revaluation
Transfers
2,257
554
(245)
128
224
382
26
-
871
-
30,423
781
(268)
772
(224)
3,275
103
-
37,208
1,361
(513)
1,003
-
At 31 December 2006
2,918
408
871
31,484
3,378
39,059
Accumulated depreciation
At 1 January 2006
Charge for the year
Disposals
-
276
38
-
-
-
-
276
38
-
At 31 December 2006
-
314
-
-
-
314
Net book value at 31 December 2006
2,918
94
871
31,484
3,378
38,745
Net book value at 31 December 2005
2,257
106
871
30,423
3,275
36,932
Diocesan Annual Report and Financial Statements Guide - 116
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
24. Investments
Agricultural
land
£000
Residential
property
£000
Commercial
Listed
property
investments
£000
£000
Total
2006
£000
Within the United Kingdom
At 1 January 2006
Additions
Disposals
Revaluation
1,650
47
215
50
15
182
9
2,760
125
187
4,807
175
258
At 31 December 2006
1,697
280
191
3,072
5,240
Cost at 31 December 2006
814
74
118
1,554
2,560
Cost at 31 December 2005
814
24
118
1,429
2,385
2006
£000
2005
£000
25. Debtors
Due within one year
Parish share
Assigned fees
Prepayments
Grants receivable
Loans to parishes
Loans to schools
Other debtors
Due after one year
Loans to parishes
Loans to schools
Other debtors
Total
26. Short-term investments
CBF deposit fund
126
52
190
28
275
36
128
84
46
75
160
25
16
835
406
361
65
50
416
52
-
476
468
1,311
874
1,685
1,660
1,685
1,660
206
92
175
85
160
-
50
65
68
82
78
18
-
731
348
361
416
425
85
386
-
871
802
27. Creditors
Amounts falling due within one year
Creditors and accruals
Loans from the Central Board of Finance:
Parishes
Other
Loans from the Church Commissioners:
Value linked
Other
Deferred income
Other
Amounts falling due after one year
Loans from the Central Board of Finance:
Parishes
Other
Loans from the Church Commissioners:
Value linked
Other
Diocesan Annual Report and Financial Statements Guide - 117
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
27. Creditors (continued)
Loans due more than one year fall due
as follows:
1 - 2 years
2 - 5 years
After 5 years
£000
85
240
36
361
28. Summary of assets per fund
Fixed assets
Tangible
Investments
£000
£000
Current
assets
£000
Creditors
£000
Net
assets
£000
Endowment funds
Expendable endowment
Stipends fund capital
Parsonage houses
Church schools
Permanent endowment
Millsborough Bequest
Restricted funds
Pastoral account
Church Schools
Diocesan Retreat House
Diocesan Regeneration project
Legacies
3,378
31,484
-
1,848
1,846
-
1,461
-
-
5,226
32,945
1,846
135
-
135
34,862
3,694
1,596
-
40,152
871
-
245
-
169
124
45
35
97
(26)
(73)
-
169
343
843
35
97
871
245
470
(99)
1,487
Unrestricted funds
General
Designated
3,012
-
1,301
-
1,583
180
(1,503)
-
4,393
180
Pension reserve
3,012
-
1,301
-
1,763
-
(1,503)
(905)
4,573
(905)
3,012
1,301
1,763
(2,408)
3,668
38,745
5,240
3,829
(2,507)
45,307
TOTAL
Stipends Fund Capital
This fund is governed by the Diocesan Stipends Measure 1953. The income of
the fund can only be used for clergy stipends (but, since 1993, capital can be
applied for improvements to parsonage houses).
Parsonage houses
This fund represents the value of all the benefice houses (parsonages) in the
Diocese after deducting loans outstanding in respect of such houses.
Schools
This fund represents the pooled sale proceeds of closed Church schools in the
Diocese in accordance with Section 287 (2) of the Education Act 1993. The capital and
income can be used for the building, extension and maintenance of Church schools.
The income alone can be spent on the management and administration of Church
schools.
Munsborough Bequest
This is a permanent endowment fund. Income is expended on clergy training under
the terms of the bequest.
Pastoral account
This fund includes the proceeds of redundant churches and parsonages. The
purposes for which the account may be used are laid down in Section 78 of the
Pastoral Measure 1983.
Diocesan Annual Report and Financial Statements Guide - 118
MERCIA DIOCESAN BOARD OF FINANCE
NOTES TO THE ACCOUNTS
28. Summary of assets per fund (continued)
Diocesan Retreat House
The Diocesan Retreat House, at Tumbledown Manor, West Mercia, is operated as
a separate activity. Under the terms of the trust for the Retreat House, all income
must be expended within the centre and, therefore, this is treated as a restricted fund
within the Board's accounts.
Diocesan Regeneration Project
The Regeneration Project supports churches in the Diocese in their involvement
in the regeneration of their communities. This project is largely funded by grants
from the European Regional Development Fund
General fund
This fund is available for any purpose within the objects of the Board. It is principally
used for the payment of stipends, national insurance, pension contributions and
housing costs of clergy and licenced lay-workers in parish ministry
Designated fund
This fund represents monies received from the Archbishops' Council to support
mission work in the Diocese
29. Corporate revaluation reserve
2006
£000
2005
£000
At 1 January 2006
Gain on revaluation of fixed assets
Gain on revaluation of investments
Actuarial loss on defined benefit
pension scheme
Realisation of revaluation gain in
previous years
2,278
128
75
2,124
186
42
(30)
(56)
(47)
(18)
At 31 December 2006
2,404
2,278
30. Analysis of changes in net debt
As at
1 January
2006
£000
As at
31 December
2006
£000
Cash
flow
£000
Cash at bank
1,585
(770)
815
Debt
Loans from the Central Board of Finance
Loans from the Church Commissioners
Other loans
(576)
(464)
-
40
(76)
(85)
(536)
(540)
(85)
(1,040)
(121)
(1,161)
545
(891)
(346)
Net debt
Reconciliation of net cash flow to movement in net debt
Decrease in cash during the year
Cash flow from decrease in debt and financing
2006
£000
(770)
(121)
Net debt at 1 January 2006
(891)
545
Net debt at 31 December 2006
(346)
Diocesan Annual Report and Financial Statements Guide - 119
Appendix IX: List of publications referred to in the Guide
1.
Accounting and Reporting by Charities - Statement of Recommended Practice (SORP 2005); and
2.
Charity Commission publications (particularly CC3 “The Essential Trustee – What you need to
know”; and CC60 “The Hallmarks of an Effective Charity”)
obtainable from the Charity Commission offices at:
LONDON
TAUNTON
LIVERPOOL
Harmsworth House
13-15 Bouverie Street
London
EC4Y 8DP
Woodfield House
Tangier
Taunton
Somerset
TA1 4BL
20 Kings Parade
Queens Dock
Liverpool
L3 4DQ
Tel: 0870 333 0123
Fax: 020 7674 2300
Tel: 0870 333 0123
Fax: 01823 345003
Tel: 0870 333 0123
Fax: 0151 703 1555
or www.charity-commission.gov.uk
3.
Statements of Standard Accounting Practice (SSAPs);
4.
Financial Reporting Standards (FRSs); and
5.
Urgent Issues Task Force Abstracts (UITF Abstracts)
obtainable from the Accounting Standards Board - initial contact through the website
www.asb.org.uk.
Accounting Standards Board
Holborn Hall
100 Gray’s Inn Road
London
WC1X 8AL
Tel: 020 7404 8818 or 020 7611 9700
Fax: 020 7404 4497
6.
Various Church of England Measures
7.
Trustee Act 2000
obtainable from Her Majesty’s Stationery Offices throughout the country,
or www.legislation.hmso.gov.uk
8.
Companies Act 1985 and subsequent amendments
obtainable from Companies House at:
Diocesan Annual Report and Financial Statements Guide - 120
Companies House
Crown Way
Cardiff
CF14 3UZ
or other offices in Edinburgh, Glasgow, Leeds, Manchester, Birmingham and London
Tel: 0870 3333636 or www.companieshouse.gov.uk
Diocesan Annual Report and Financial Statements Guide - 121
Appendix X: List of relevant UK Accounting Standards
Financial Reporting Standards (FRSs)
1
2
3
4
5
6
7
8
9
10
11
Cash flow statements (revised 1996)
Accounting for subsidiary undertakings
Reporting financial performance
Capital instruments
Reporting the substance of transactions
Acquisitions and mergers
Fair values in acquisition accounting
Related party disclosure
Associates and joint ventures
Goodwill and intangible assets
Impairment of fixed assets and goodwill
12
Provisions, contingent liabilities and
contingent assets
Derivatives and other financial instruments:
disclosures
Earnings per share
Tangible fixed assets
Current tax
Retirement benefits
Accounting policies
Deferred tax
13
14
15
16
17
18
19
21
25
26
28
29
Statements of Standard Accounting
Practice (SSAPs) still extant
4 Accounting for Government Grants
5 Accounting for value added tax
9 Stocks and long term contracts
13 Accounting for research and development
15 Status of SSAP 15
19 Accounting for investment properties
20 Foreign currency translation
21 Accounting for leases and hire purchase
contracts
25 Segmental reporting
Post balance sheet events (IAS 10)
Financial Instruments: Disclosure and
Presentation (IAS 32)
Financial Instruments: Measurement (IAS
39)
‘Corresponding amounts’
Financial Instruments: Disclosures (IFRS 7)
Diocesan Annual Report and Financial Statements Guide - 122
Relevant “Urgent Issues Task Force” (UITF) Abstracts still extant
4
9
Presentation of long term debtors in current
assets
Accounting for operations in hyperinflationary economies
5 Transfers from current assets to fixed assets
10 Disclosure of directors’ share options
15
Disclosure of substantial acquisitions
(revised 1999)
23
Application of the transitional rules in FRS
15
24 Accounting for start-up costs
27
Revision to estimates of the useful economic
life of goodwill and intangible assets
Website development costs
28 Operating lease incentives
29
34
38
42
Pre-contract costs
Accounting for ESOP trusts (superseded
No.13)
Reassessment of embedded derivatives
32 Employee benefit trusts and other
intermediate payment arrangements
35 Death-in-service and incapacity benefits
40 Revenue recognition and service contracts
Diocesan Annual Report and Financial Statements Guide - 123
Appendix XI: Benefice (Parsonage) Houses and related
information
(These notes do not apply to houses held as diocesan glebe or diocesan corporate property.)
Incumbent

An incumbent is an ecclesiastical corporation sole with rights and duties.

On induction, an incumbent automatically has certain properties vested in him/her as benefice
property, including the parsonage house.

The corporate property of an ecclesiastical corporation, whether sole or aggregate does not constitute
a charity for the purposes of the Charities Act 1993, section 96 (2)(a) (unless it is held for the
purposes of a charity distinct from the corporation itself or has some non-ecclesiastical purpose).

Therefore, a parsonage house is not accountable under Part VI of the 1993 Charities Act.

During his/her incumbency the person concerned is owner/occupier of the parsonage house.

During a vacancy in the benefice the freehold is automatically suspended. The situation is similar if
the Bishop exercises his rights to suspend a benefice under section 67 or 69 (2) of the Pastoral
Measure 1983.
Under the Repair of Benefice Buildings Measure 1972 different entities have certain rights and
responsibilities:

an incumbent’s main obligations and powers are set out in section 13 including the duty of care;

the main duties and rights of the diocesan parsonages board/DBF are set out in sections 3, 4, 5, 11,
12, 15, 21 and 23; and

the duties of sequestrators or the Bishop during a vacancy are set out in section 26.
Other relevant Measures include:
 The Parsonages Measure 1938
 The Endowments and Glebe Measure 1976
 The Pastoral Measure 1983 as amended by the Team and Group Ministries Measure 1995
 The Patronage (Benefices) Measure 1986
Definitions
“Sequestrators”
The persons appointed to administer the income of a benefice in sequestration. Those persons also carry
certain rights and obligations during a period of sequestration. Under the Church of England
(Miscellaneous Provisions) Measure 1992 the sequestrators are the churchwardens, the rural dean (and, if
the bishop wishes, one other person appointed by the bishop.
Diocesan Annual Report and Financial Statements Guide - 124
“To sequestrate” (sequestration)
To divert the income of a benefice temporarily or permanently from its owner, the incumbent, into other
hands. However, during a vacancy the net income (fees and Easter offerings) has to be credited to the
Diocesan Stipends Income fund.
Diocesan Annual Report and Financial Statements Guide - 125
Appendix XII: Valuation of property, FRS 11/15 Working Paper
FREEHOLD PROPERTY
Ref
WORKING PAPER
Deed
Year
Cost
Area
Q2 index year
Q4 index
Valuation
Q4 index
Valuation
Q4 index
Valuation
of purchase
2004
Dec 2004
2005
Dec 2005
2006
Dec 2006
84,838
195.0
96,127
1004
Address 1
D0050
1978
42,000
A1
85.2
149.1
73,500
172.1
1006
2
D0070
1987
48,000
A2
103.6
140.0
64,865
162.3
75,197
183.9
85,205
1009
3
D0076
72,000
A3
99.3
131.2
95,130
147.1
106,659
162.8
118,043
1020
4
D0078
71,500
A2
103.6
140.0
96,622
162.3
112,012
183.9
126,919
1022
5
D0079
52,300
A2
103.6
140.0
70,676
162.3
81,933
183.9
92,837
1029
22
D0081
71,200
A1
106.8
149.1
99,400
172.1
114,733
195.0
130,000
1033
7
D0097
76,800
A1
124.9
149.1
91,680
172.1
105,823
195.0
119,904
1037
8
D0099
82,900
A2
130.0
140.0
89,277
162.3
103,497
183.9
117,271
1038
9
D0122
101,500
A2
130.0
140.0
109,308
162.3
126,719
183.9
143,584
1041
10
D0147
74,000
A2
130.0
140.0
79,692
162.3
92,386
183.9
104,681
1042
11
D0155
97,500
A2
130.0
140.0
105,000
162.3
121,725
183.9
137,925
1043
12
D0163
57,800
A1
124.9
149.1
68,999
172.1
79,643
195.0
90,240
1047
13
D0123
69,500
A2
130.0
140.0
74,846
162.3
86,768
183.9
98,316
1050
14
D0128
113,700
A2
130.0
140.0
122,446
162.3
141,950
183.9
160,842
1053
15
D0125
99,500
A3
126.8
131.2
102,953
147.1
115,429
162.8
127,749
1057
16
D0135
61,900
A2
129.8
140.0
66,764
162.3
77,399
183.9
87,700
1061
17
D0130
71,800
A1
121.8
149.1
87,893
172.1
101,451
195.0
114,950
1064
18
D0085
78,500
A1
115.2
149.1
101,600
172.1
117,273
195.0
132,878
1065
19
D0158
72,300
A2
118.0
140.0
85,780
162.3
99,443
183.9
112,678
1069
20
D0165
1994
102,900
A2
106.4
140.0
135,395
162.3
156,961
183.9
177,850
1079
21
D0170
1996
77,600
A1
104.7
149.1
110,508
172.1
127,555
195.0
144,528
1075
22
D0177
1997
1077
23
D0180
1078
24
D0189
1080
25
D0190
1081
26
D0192
1083
27
D0194
1988
1991
1998
71,300
A3
118.3
131.2
79,075
147.1
88,658
162.8
98,120
170,000
A3
118.3
131.2
188,538
147.1
211,386
162.8
233,947
91,800
A3
127.8
131.2
94,242
147.1
105,663
162.8
116,940
110,500
A2
135.3
140.0
114,339
162.3
132,551
183.9
150,192
146,000
A1
141.4
149.1
153,950
172.1
177,699
195.0
201,344
117,700
A3
127.8
131.2
120,831
147.1
135,475
162.8
149,934
Diocesan Annual Report and Financial Statements Guide - 126
FREEHOLD PROPERTY
Ref
WORKING PAPER
Deed
Year
Cost
Area
1999
85,000
A3
65,300
A3
Q2 index year
Q4 index
Valuation
Q4 index
Valuation
Q4 index
Valuation
of purchase
2004
Dec 2004
2005
Dec 2005
2006
Dec 2006
139.2
147.1
89,896
162.8
99,491
139.2
147.1
69,083
162.8
76,456
195.0
110,000
1084
28
D0195
1085
29
D0199
1086
30
D0201
110,000
A1
1087
31
D0205
102,500
A2
102,500
1088
32
D0208
77,000
A3
77,000
2000
SUB TOTAL
£2,742,300
£2,683,308
£3,239,805
£3,936,151
% change in indices from www.nationwide.co.uk/hpi/quarterly/prices.htm
In this example, indices are available for areas A1, A2 and A3 within the
diocese.
Column 1 shows the diocesan internal reference number for the property in question
Column 7 the quarter 2 index in the year of acquisition as the base for indexation
Column 2 the address
Column 8 the quarter 4 (year end) index
Column 3 the title deed reference at the Land Registry
Column 9 the quarter 4 (year end ) valuation and so on.
Column 4 the year of acquisition
Column 5 the cost, (extra columns could be added where improvements are capitalised)
Column 6 the geographical area as above
Diocesan Annual Report and Financial Statements Guide - 127
Appendix XIII: Diary of updates
EVENT
DATE
Third Edition approved by the Working Group
25 August 2006
Diocesan Annual Report and Financial Statements Guide - 128