What must the financial review say about our reserves?

England and Wales: This page sets out the position in full. Scotland: the same duty, with no difference in principle — OSCR independently treats the reserves policy statement as a legal requirement too, with no small-charity exemption. Northern Ireland: the same duty again — CCNI states directly that even the smallest registered charities must report their reserves position, independently confirming the same legal-disclosure-versus-good-practice-policy split found in England and Wales.

Reserves policy statement and reserves reconciliation

Two separate duties sit behind the single word “reserves”: the policy statement and the reconciliation. For trustees reporting to the Charity Commission in England and Wales, confusing them is the whole trap. This is where the accounts and the narrative are forced to agree.

This page assumes the report’s contents are settled; see establish your SORP tier and your report’s contents. It also assumes you worked out the figure when you calculated your free reserves.

The reserves policy statement has been a legal requirement for years. The Charities (Accounts and Reports) Regulations 2008 (SI 2008/629), reg 40(3)(p), verbatim:

“a description of the policies (if any) which have been adopted by the charity trustees for the purpose of determining the level of reserves … and where no such policies have been adopted, a statement to that effect.”

Reg 40(7) exempts a non-auditable charity from several of reg 40(3)’s other sub-paragraphs, but not from (p). So there is no small-charity escape from the policy statement. Silence is the breach, not the absence of a policy.

Whether to adopt one is covered in does a small charity have to have a reserves policy. What it says is covered where you write your reserves policy.

The reserves reconciliation is the new instruction. It comes from a different source. Charities SORP 2026, Module 1, para 1.38, verbatim:

“The figure for reserves in the report must be consistent with the accounts and, where this is not evident, the charity must provide a reconciliation, either in the funds note or as a separate note.”

This sits under the SORP’s Tier 1 heading. Tier 1 is the minimum content for every accruals charity. So there is no small-charity escape from the reconciliation either.

Sometimes it is not evident that your reserves figure is the same number as the one in your accounts. You now have to show how they connect. Stating a figure and moving on is no longer enough.

Reg 40 itself still refers to two Acts that have since been repealed and replaced by the Charities Act 2011. No revised version of this regulation has ever been published on legislation.gov.uk. The cross-references still work, by operation of the Interpretation Act 1978. Knowing this before you look saves you wondering whether you have the wrong provision.

What must a reserves reconciliation show?

A reserves reconciliation shows how the reserves figure in the report connects to the figures in the accounts. The SORP is specific about what “consistent” means. Para 1.34, verbatim: “All financial details used in the report must be consistent with the figures in the accounts.”

Where it is not evident that your narrative reserves figure matches your accounts figure, the reconciliation has to bridge the two. Asserting that both are correct is not enough.

The gap nearly always has one of a few ordinary causes:

• money in designated funds, which the trustees have already set aside for a purpose
• value tied up in fixed assets rather than held as spendable cash

Neither is a problem in itself. What has changed is that an unexplained gap is no longer acceptable. You can no longer expect a reader, or an examiner, to take the difference on trust.

What if the charity holds no reserves?

Some charities hold none, for good reason. The SORP treats that as a decision to disclose, not a defect to hide. Para 1.37, verbatim: “if the trustees have decided that holding reserves is unnecessary, the report must disclose this fact and provide the reasons for this decision.” Saying nothing is the mistake here. Not holding reserves is not.

Some positions are more serious than a simple zero: no reserves, or negative net assets on the balance sheet. Then the report has a further duty. Para 1.41, verbatim: “Where a charity has no reserves (or negative net assets on the balance sheet), it must explain why it is still operating as a going concern.”

That explanation belongs alongside the reserves disclosure, not scattered elsewhere in the report. It is where the reserves question and the going concern question meet; the assessment itself is covered where you assess going concern.

Is there a small-charity exemption?

No. You might assume the smallest charities get a lighter version of these requirements. They do not. Tier 1 (gross income of £500,000 or less) has its own itemised list of what the financial review must cover. That list includes the reserves policy statement and the reserves reconciliation.

Tier 2, for gross income up to £15,000,000, and Tier 3 above that, add different obligations on top. These include investment policy, environmental risk and a more detailed performance narrative. The tiers do not work by asking Tier 1 charities to do less of the same thing. A Tier 1 charity that assumes it is exempt from the reconciliation because it is small has misread how the SORP is structured.

Northern Ireland: the same split, confirmed independently

CCNI’s Guide 4 states the position directly, verbatim: “By law, even the smallest registered charities have to review their work and their finances at the end of their financial year and report on their financial position in their trustees’ annual report. You should include the information about whether your charity does or doesn’t hold reserves, and why you have made that decision.”

CCNI still frames the reserves policy itself as helpful, not mandatory. That is the same split as in England and Wales: disclosure is a legal duty, the policy is good practice. CCNI reached it independently; it is not assumed to carry across.

With the financial review drafted, the next step is to approve the trustees’ annual report.

Common mistake: quoting a reserves figure that does not appear anywhere in the accounts

The narrative and the accounts are often written by different people at different times. The two documents drift apart without anyone intending it.

Charities SORP 2026 Module 1 para 1.38 requires the figure to be consistent with the accounts. Where that is not evident, it requires a reconciliation, either in the funds note or as a separate note. This is a Tier 1 requirement, so there is no small-charity escape. An unexplained figure is a visible defect, not a private inconsistency nobody will notice.

Common mistake: saying nothing where the charity has no reserves policy

With no policy in place, it can feel as though there is nothing to report. The accounts regulations require a statement to that effect regardless, under reg 40(3)(p), quoted in the first section. Reg 40(7)’s exemptions for non-auditable charities do not reach that sub-paragraph. Silence is the breach.

Worked example

Wrenfield Village Hall’s financial review states a reserves figure. On its own, that figure does not seem to match the unrestricted funds total in its accounts. The difference is money the trustees have already earmarked for a roof repair already under way. It is a legitimate designated fund, not an error.

Before this SORP, the trustees would have stated the policy and left it there. Now the report has to show how the two figures connect, by naming the designated amount. The reserves figure the reader is looking for is then the balance left once that commitment is honoured.