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Investment Property and Charities SORP (FRS 102)

Just want to be 100% sure on accounting treatment

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My client is a charitable company limited by guarantee, based in Northern Ireland. We are engaged as auditors and are currently working on year ended 31 Dec 2016. The company is transitioning from Charities SORP FRSSE to Charities SORP (FRS 102). Upon reading Update Bulletin 1, I want to make sure I am reading the guidance correctly and not missing anything relevant.

Firstly, the guidance notes that investment properties (which are the major element of the charity's assets) must be stated at fair value at reporting date. Am I right in thinking this applies to 31/12/15 and 31/12/16 under the new accounting framework? So if no revaluation was done at 31/12/15 then these accounts must shown the revaluation of the investment properties at each year-end date? With appropriate disclosures of the adjustment to the 2015 figures?

Secondly, the client may not wish to incur the cost of external valuation and I can see certain exemptions on this within the guidance including the disclosure requirments. One of the directors has been involved in property and construction for over 20 years and would have reasonable local knowledge of the property market. Can we rely on this fair value estimate? (I know it's really our call but just looking for thoughts on this).

Thirdly, the guidance indicates that revaluation must be included in the SOFA and, from a pro forma set of accounts I've looked at, the revaluation is shown after "Tranfers Between Funds" under a section called "Other recognised gains / (losses)". But which fund does the revaluation be attributed to - restricted/unrestricted? 

Many thanks in advance for any help given.

 

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10th Apr 2017 18:17

It sounds like some CPD is needed...

"But which fund does the revaluation be attributed to - restricted/unrestricted? "
It follows the underlying asset, but via ‘Gains/(losses) on investments', not 'Other recognised gains/losses' See SoRP para 10.43

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to WhichTyler
10th Apr 2017 19:58

Thanks for that. It was a recent CPD course that generated my queries, it covered FRS 102 but not specifically for charities. I've got CPD for charities later this year but wanted to be sure of these points now for current audit.

I see the reference at 10.43 but was reading table 2 and seeing the gains/losses on revaluation category in the SOFA, but now see at 4.62 in the SORP that this if for PPE and not investment properties.

Great stuff, thanks for that.

Any comment on the source of the fair valuation? i.e. directors versus independent based on the facts in my earlier post?

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to KPEM online
10th Apr 2017 21:36

1. I am not now, nor ever have been, an auditor.
2. AFAIK there is no absolute requirement for an independent valuation, but there may be commercial reasons (e.g bank covenants) for getting them
3. You as auditor have to be satisfied that the valuation given is t&f, no material misstatement. So you will doubtless ask management how they obtained their value (e.g. sales of similar properties in similar condition, comparison with discounted future cash flow etc.) See ISA545

This says that the bases of valuation should be documented for auditors review, so not just Big Dave putting his finger in the air...
https://www2.deloitte.com/ng/en/pages/audit/articles/financial-reporting...

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