2.2 Annual Accounts
Alongside the annual return form (AR30), a society is required to fill a full set of annual accounts which must be received by members at an Annual General Meeting (AGM).
A society’s annual accounts must comply with FRS102. Smaller societies may use the presentation of FRS102 1A which is part of the FRS102 framework. Care should be taken to ensure the accounts are compliant with the Co-operative and Community Benefit Societies Act 2014. Charitable Community Benefit Societies must also ensure they prepare accounts in accordance with the Charities SORP. Societies which are Registered Providers must use the Housing SORP even if they are charitable. Charitable CBSs registered in Scotland must also submit annual returns to OSCR.
Most accounting software will produce company style accounts and make reference to the relevant sections of the Companies Act 2006 so care should be taken to ensure any references to companies or the Companies Act 2006 are removed and replaced with societies and the Co-operative and Community Benefit Societies Act 2014.
For a full list of the key differences between society and company accounts to share with an accountant, please read page 6 of the Finance Toolkit.
For Co-operative and Community Benefit Societies, the profit and loss or income statement should be described as a the ‘Revenue Account’ and for Charitable CBSs, the profit and loss forms part of the ‘Statement of Financial Activities (SoFA)’. A brief overview of the treatment of share capital and interest in the various financial tables is below. Template accounts are also available for Co-operative Societies and Charitable Community Benefit Societies.
Working with a qualified accountant is recommended in the preparation of annual accounts.
Revenue Account (Co-operative and Community Benefit Societies)
Any movements of share capital, including interest paid should not be included in the Revenue Account but treated as equity in the Statement of Changes in Equity (SOCIE) as below.
Dividends paid by Consumer Co-operative Societies are captured in the Revenue Account as part of sales. Dividends paid to employees in a worker co-operative society are wages and should be accounted for under PAYE.
Statement of Financial Activities (SoFA) (Charitable Community Benefit Societies)
Any movements of share capital should not be included as a charitable expenditure in the SoFA and instead be captured in the SOCIE (below).
Payment of share interest can be captured in the SoFA under ‘transfer between funds’, as illustrated in the template accounts. Income and expenditure must be distinguished between restricted and unrestricted funds as per the Charity SORP.
Balance sheet (Co-operative and Community Benefit Societies)
In a Co-operative or Community Benefit Society, members share capital should be presented in the balance sheet under ‘Capital and Reserves’.
Balance sheet (Charitable Community Benefit Societies)
In a Charitable CBS, share capital is a component of unrestricted funds (including designated funds), forming part of the society’s total funds.
In Companies, this is often referred to as ‘called up share capital’ but in all societies should be referred to as ‘share capital’ or ‘members shares’ with an explanatory note in the accounts.
Statement of Changes In Equity (All three societies)
It is not an obligation of FRS102 or FRS 102 1A to include a SOCIE, but most societies who have raised finance through community shares or have paid interest on share capital will see some movement in equity during the financial period which will warrant a SOCIE. If there are no movements in equity in the period, other than the revenue account result for the period, then a SOCIE is not required.
The SOCIE should capture the carrying value of share capital at the end of the financial year and any movements throughout the year. The following should be included in the SOCIE:
- The opening balance
- New share capital issued
- Share capital withdrawn
- Shares cancelled (upon death of a member)
- Shares withdrawn and subsequently donated back to the society
- Any interest paid out or credited to members’ share accounts
- Any reduction in value of share capital (as per the society’s rules)
Tracking these movements in equity can be a burden when it comes to pulling together annual accounts if not managed efficiently throughout the year. See the section below on managing a society’s membership/share register on this.
Annual report, also known as the chair’s report or trustees’ report (all three societies)
There is no legal requirement for any form of words in the annual report. However, the following is recommended as best practice.
The annual report is an opportunity to add narrative or clarification to any movements of members’ share capital and share interest, as well as the usual reporting on activities, outcomes and strategy. The report should also state any net surpluses (or losses) of the society and how these have been applied, either reinvested in the society, used for the benefit of the community or donated to other organisations with similar objects.
Additional consideration should be given to any members’ expectations as laid out in the original share offer document and business plan i.e. has the society’s financial position been in line with projections and has the society been able to meet members’ expectations. If the decisions take effect in a future reporting period, then this discussion could be included in a section of ‘plans for future periods’.
The position of and ability of the society to pay interest or enable withdrawals (see Sections 3.1 and 3.2) of shares should be articulated, including any discussions or decisions made at AGMs during the financial year. Directors should consider their approach to enabling withdrawals of share capital. This could be through the designation of unrestricted funds, or the decision to offer new share capital through an open offer to enable existing members to withdraw their shares.
The report should also include any strategic decisions or projects which may require the society to raise additional share capital through another, more specific, offer of shares.
Annual report for charitable community benefit societies and registered social housing providers
These societies need to provide a report that is compliant with the Charities SORP or Housing SORP. The reporting requirements of the Charities SORP are extensive.