I wrote this in answer to Jane Powell's question on "Reporting on pro bono support" in a charity's annual accounts.    But I couldn't copy/paste it into the reply box there, so I've posted it here instead

 

Welcome to the club, Jane !!!.    You are not the only person to be confused by the official guidance on reporting the value of volunteer (ie: pro bono) contributions charity finances.

The accounting rules for charities are based on the Financial Reporting Standard FRS-102, the ca.400-page accountancy “bible” which defines the financial reporting rules for most organisations in the UK, including charities (https://www.frc.org.uk/library/standards-codes-policy/accounting-and-reporting/uk-accounting-standards/frs-102/) .

When it comes to quoting the official guidance an “interesting place” to start is sections 1.1 & 1.2 of the FRS-102 which blithely say:

But they conveniently overlook pointing out that it takes another ca.200 pages of the Charity Statement of Recommended Practice to explain how the ca.400 pages of the FRS-102 have to be interpreted to apply them to charity financial reports.

 

It is, of course, true that financial reporting for the charity sector does have some similarities to financial reporting for the commercial sector.   In particular, that donors to charities (like investors in commercial organisations) want financial reports that provide reassurance – ie: a “true and fair view” that their donations (or investments) are being properly used and managed Efficiently, Effectively and Economically to deliver maximum “value for money”.

But there is also a fundamental difference:  
For charity donors, delivering maximum “value for money” means spending their money to deliver maximum benefits to others – the “public”.  
But for commercial investors, delivering maximum “value for money” means spending their money to deliver the maximum amount of personal financial benefit – profit – back to them.

So it’s hardly surprising that financial reporting rules created to meet the needs of the commercial sector don’t fit terribly well with the needs of the charity sector.   Or, to put that a bit more directly, are NOT FIT FOR PURPOSE.

 

This, of course, is not a new problem.   You are not the first, and certainly not the only, member of the “Confused Club”.
Back in 2020 I wrote a blog entitled “Not Fit for Purpose” – you can find it on the Small Charity Support website (https://www.smallcharitysupport.uk/index.php/charity-thoughts?view=article&id=27:fit-for-purpose&catid=12:about-small-charity-support) .   I submitted it to one of the, then, SORP Review Panels, which responded “the thrust of your concerns about the current provisions of the SORP very much chime with our own“.

 

Other apparent “members of the Club” appear to be:

The Charity Commission , which in May 2021 wrote to the Financial Reporting Council saying:  “…the PBE paragraphs {of the FRS-102} are proving insufficient in addressing the reporting needs of the users of charity accounts…“ (https://www.smallcharitysupport.uk/images/Thoughts/NFfP-ChCom-FRC.pdf) .
And the CEO of the Charity Finance Group is reported (in the Third Sector magazine) as saying:  “ we need to break this long but flawed habit of shoehorning charities into regulation and legislation designed for the for-profit world “ (https://www.thirdsector.co.uk/trustees-major-charities-held-personally-liable-accounting-mistakes/governance/article/1722228)

But no sign of any appropriate changes to the rules being made 🙄

 

Fortunately, it’s not all bad news.
If you go on to clause 6.18 of the SORP you’ll find it says:   “…. These factors, together with the lack of a market comparator price for general volunteers, make it impractical for their contribution to be measured reliably for accounting purposes. Given the absence of a reliable measurement basis, the contribution of general volunteers must not be included as income in charity accounts.”
In the commercial sector, including the “value” of capital assets which can be sold off is important as a potential source of  additional profit to investors.   But most charity volunteers (including pro bono professional contributors) tend to object to being “sold off for profit” (sounds too much like modern slavery).   So they are, in accountancy reporting terms, “valueless” and (as Stuart Davis pointed out in his response to your question) therefore do not need to be included in your charity’s annual accounts.

 

Looked at in that way, it’s much more obvious and less confusing.

Hope that helps.