CFDG to raise concerns about new accountancy rules for charities with the ASB | AccountingWEB

CFDG to raise concerns about new accountancy rules for charities with the ASB

THe Charity Finance Directors’ Group has published the following press release:


"Charity Finance Directors’ Group is concerned that some of the proposed changes to the UK financial reporting standards are unnecessarily demanding and will add to the costs of running a charity, particularly for those charities that generate income through charity shops.

CFDG is responding to the Accounting Standards Board (ASB) consultation on a new accounting standard, known as the Financial Reporting Standard for Public Benefit Entities (FRISBE), which will apply to all charities. It is expected to be brought in by the ASB some time in 2014.

While there are many positive aspects of the new standard, it also contains some proposals which would dramatically impact on the way that charities operate. The proposal about valuing donated goods is the most contentious issue. This would require all charities to place a value on donations to charity shops and recognise this in their financial statements, potentially leading to significantly increased stocktake and audit costs.

Jane Tully, Head of Policy and Public Affairs at CFDG said: “This will be a resource heavy and costly change for those charities that have charity shops. In addition to the practical issues and costs, there are very sound technical reasons why stock donated should not be included in the balance sheet. We are concerned that this will make accounts less useful and transparent to the public. The last thing we want is unnecessary bureaucracy, making it more difficult for charities to raise funds in this way.”

There are other areas within the FRSPBE where more discussion is needed. Jane added “recognising legacy income, making funding commitments to other organisations and valuing volunteering are issues that have been debated for some time. Charities have different views on these depending on their circumstances. Progress has been made on these areas in the charities SORP as a result of ongoing discussions; there are lessons from this process which could be applied here as the debate continues.”

CFDG’s members have been engaged in the debate through a variety of events and are keen to make their views heard to the ASB, especially around valuing donated goods."

John Stokdyk's picture

CFDG response - executive summary

John Stokdyk | | Permalink

The Charities Finance Directors' Group has released the full text of its response to the ASB exposure draft. Here are the highlights:

  • CFDG is pleased that the ASB has addressed some of the areas where international financial reporting standards do not adequately provide for public benefit entities such as charities, housing associations and higher education bodies. The development of higher level principles which can be applied across all three of these sectors is also welcome in terms of helping to address inconsistencies between the sector-specific SORPs. However, there are some areas where more work is required in order to determine an appropriate accounting solution for PBEs, and this may occur at the SORP level. The existence of a SORP which can act as a ‘one stop shop’ is also extremely important for public benefit entities. The implementation and adoption of the new framework, from the perspective of public benefit entities, should be reliant on the timely completion of the sector-specific SORPs.
  • CFDG would like the ASB to acknowledge that there are some very real costs associated with implementing the new framework in the sector. These costs are also very difficult to estimate, not least because they may vary depending on which requirements and provisions in the draft are actually implemented. The proposed requirement for organisations to value donated goods for sale would be particularly resource heavy. The ASB should re-consider the Impact Assessment in light of this and other issues.
  • CFDG would like the ASB to adopt a principles based approach in providing a better definition of a ‘public benefit entity’.
  • The treatment of concessionary loans, as outlined in FRED 45, is felt by CFDG to be correct. However, this option should be extended to an organisation that is part of a PBE group but may not be a PBE in itself (excluding financial institutions).
  • CFDG is hopeful that tentative decisions made by the ASB in relation to the FRSME will mean that revaluation of property, plant and equipment will be allowed under the new framework. Within the FRSPBE, it would be useful if ‘primary provision of social benefit’ could be better explained.
  • It is positive that the ASB has recognised that for PBEs there will be situations where mergers occur. However, CFDG has concerns regarding some of the criteria for merger. CFDG would like the ASB to reconsider the criteria outlining ‘no significant change’ to activities or beneficiaries.
  • Some of the disclosure requirements set out for circumstances where entity combinations are in substance a gift are unnecessarily onerous. CFDG would also like the FRSPBE to recognise that the requirement for intangible assets to be recognised when their value can be measured reliably will not be met when the combination involves two PBEs.
  • PBEs should be exempt from the indicator of impairment outlined in the (draft) FRSME paragraph 27.9 a)-g), which states that “the carrying value of the net assets of the entity is more than the estimated value of the entity as a whole”, as this is unlikely to return any reliable figures.
  • CFDG has serious concerns regarding the requirement in FRED 45 for goods donated for sale to be valued. As well as the significant practical difficulties associated with this, it is felt that this information is unlikely to be useful to the users of the accounts.
  • CFDG would like the ASB to clarify the requirements around the recognition of legacy income which are currently unclear.

If you'd like to see the full CDFG response, you can find it on the group's website. If you're involved with charities, do the criticisms hold true for you too?

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