Income recognition/deferred income in CIO

Correcting past mistake in income recognition gives incorrect picture in Year End Reporting

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I work for a small CIO and we've been advised that past treatment of grant income was incorrect as just recognised when payment received, and should have been deferring the balance at the year end to the following year.

If I make this correction for the current financial year it brings down our income by about £150,000 and as did not defer the restricted fund balances in the previous financial year that will show as a significant drop year on year.

Is there any way to address this. I've read through the relevant section in SORP which gets more confusing as progress. 5.10 says income is recognised when there is evidence of entitlement to the gift, receipt is probable and its amount can be measured reliably. But 5.13 then says that need to identify donations or grants that are subject to terms or performance-related conditions or other conditions that must be met. Most of our grants are for a specific purpose e.g. we might say that we will run 12 workshops attended by 60 young people - but is that a performance-related condition? And we will probably say when the activity will take place e.g. we will run our service from 1st May to 31st April. Does this mean the balance should be deferred?

Realistically we are unlikely (it has never happened) to have to return the funding - we will report back when the money is spent and might say we ran 11 workshops and only 55 attended. Only situation where likely to return the money would be if decided to not run the service that given the funding for (which again has never happened).

Woud appreciate some advice!

Replies (5)

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By Paul Crowley
06th Jun 2024 14:26

Very confused
If the funds are restricted then none of this stuff matters.
What you are describing sounds like restricted funds.

Firstly you claim that you were advised. By whom?
Did you have absolutely no faith in in the people doing your accounts.
I assume you do have an accountant and an independent examiner.
Why not ask them?

My guess is that donors are the people complaining.

'I work for a small CIO and we've been advised that past treatment of grant income was incorrect as just recognised when payment received, and should have been deferring the balance at the year end to the following year.

If I make this correction for the current financial year it brings down our income by about £150,000 and as did not defer the restricted fund balances in the previous financial year that will show as a significant drop year on year.'

Restricted funds are not your funds. Each one operates on its own. Once received the cash held has to be identified and accounted for in the balance sheet. Any 'deferment' would in effect be a fictional creditor, serving no purpose.
It the claim that the entire cash balance is deferred, or the estimated cost to supply the rest of the workshops?

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By paul.benny
06th Jun 2024 14:33

The funding you mention is to run workshops. To me that's a clear performance obligation, even if it's one never breached, and therefore the grant income should be deferred.

Deferral until the workshops are held also means that you are matching income and costs.

Whether you should restate prior year really depends on the materiality of the amount that should have been deferred. If you're "small" and the amount is £150k, it quite possibly is material.

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Replying to paul.benny:
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By yorkshire
06th Jun 2024 14:47

Thank you.

The restricted funds balance in the prior year was £163751 so would make a big impact on this year's income.

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Replying to yorkshire:
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By paul.benny
06th Jun 2024 16:27

It'll reduce your opening restricted fund balance. Assuming you spend it all this year, the balance at the end of the current year will be unaffected.

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By yorkshire
07th Jun 2024 13:31

The section of SORP that I found confusing was 5.14 which states:

Not all terms or conditions attaching to a grant or donation prevent its recognition as income. A term or condition that simply restricts the use of a grant or donation does not affect a charity’s entitlement to the gift and recognition of income.

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