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AIA

New not-for-profit accounting standard needs more work

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5th Sep 2011
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A proposed accounting standard for “public benefit’ organisations is a step in the right direction but should be improved before its introduction, the Institute of Chartered Accountants in England and Wales (ICAEW) has said. Nick Huber reports.

The institute was responding to a draft financial reporting standard for public Benefit Entities (FRSPBE), issued by the Accounting Standard Board. The  consultation on FRSPBE closed on 31 July. The ASB has proposed that the standard will come into force on 1 July 2013.

The standard defines a “public benefit entity” as an organisation whose primary objective is to provide goods or services for the general public, community or social benefit rather than with the aim of providing a financial return to equity providers, shareholders or members.

John Boulton, ICAEW corporate reporting manager, said FRSPBE could make accounting principles in the public benefit sector more consistent, but also said that organisations that will be affected by FRSPBE need more time to prepare for it.

“The proposed schedule for transition is too short; our working party, formed especially to discuss these proposals, concluded that bodies affected would not be able to adapt in time,” he said.

Plans to value donated goods and services could prove problematic,” he said.

“Valuation at their market value to the donor seems inappropriate. Consistency in this area is desirable: at the moment different rules apply to different kinds of donations.

However, the value to the original owner of, for example, secondhand items they have donated for re-sale, such as cast-off clothes or unwanted gifts, [are] unlikely to be the same as their useful value to a charity shop. We feel a focus on the value actually received would be better”

 “Overall, we are fully behind the aim of the standard, but it needs more work before it will achieve it.”

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Teignmouth
By Paul Scholes
07th Sep 2011 21:00

Charity commission response

It's also worth a read of the joint response (PDF) made by the Charity Commission & Office of the Scottish Charity regulator as they concentrate on the thorny issue of goods donated for sale to charity shops and how trying to value these on receipt of the goods rather than sale of them, is going to be of no real benefit.

They also highlight the point that the market value of some donated services may actually be far more than they would have paid should they have had to buy in the service.  For example we do the bookkeeping for a small charity and a full market value of our work might be £10K pa whereas we charge £2K, should they therefore overstate their income and expenditure by £8K or ascertain that the same work could be done by an experienced bookkeeper for say £5K and include that instead?

Having said all this I don't see that, in reality there will be long-term problems with all of this, I agree with the need to bring accounting practice in line across the PBE sector and to make it comparable with the commercial sector and feel that there is sufficient leeway for application of judgment and reasonableness to enable bedding in over a number of years.

As to the timescale, on the face of it making it mandatory for accounting periods commencing after July 2013 is not unreasonable however I suppose we will be faced with comparative restatement meaning that we will have to start considering the effects on accounts beginning after July next year?  Not the end of the world and keeps us in business or donating.

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