International Accounting Standard 27 - Briefing Update

Introduction

Recent developments have re-ignited the debate surrounding the government's intention to apply the International Accounting Standards 27 (IAS 27) to NHS linked charities.

IAS 27 will require the consolidated financial statements for a group of entities under the control of a parent body. NHS charities governed by corporate trustees which are themselves NHS bodies (eg NHS Trusts, Primary Care Trusts etc) are set to be affected by the IAS 27.

To date, NHS charities have been exempt from the effect of IAS 27, with HM Treasury deferring the implementation of IAS 27 to NHS charities several times. The government now intends to implement IAS 27 for NHS linked charities from 1 April 2013. HM Treasury is going ahead despite considerable criticism from the media, lobbyists, the Association of NHS Charities and the Charity Commission itself.

The Implementation of IAS 27

HM Treasury has deferred the application of IAS 27 to NHS bodies several times since it was due to take effect in 2009/10 financial year, when the government adopted the International Financial Reporting Standards. In large part these delays have been the result of considerable media and lobby group pressure, though the Treasury remains unswayed by the serious criticism the proposal has provoked. In advance of the most recent deferral, the Treasury published its 'Report of the Review Group of NHS Linked Charities in the context of the government accounting framework', in which it concluded that IAS 27 would 'not impact the legal integrity of trustees' nor would it 'affect the use of funds by NHS Bodies.' Yet many interested parties remain unconvinced by the Treasury's conclusions, suggesting that they are 'potentially misleading' and its report 'ignores or misinterprets fundamental issues'.

The Concerns It is anticipated that IAS 27 could give rise to a number of adverse implications for NHS Charities. Control A key concern, as argued by the Charity Commission from the outset, is that the definition of 'control' used for the purposes of IAS 27, is inappropriate in the context of NHS Charities. In relation to the IAS 27, 'control' is defined as 'the power to govern the financial and operating policies of an entity so as to obtain benefit from its services'. In the Charity Commission's view, any assumption that this definition covers the relationship between NHS Charities and their corporate trustees undermines the fundamental characteristics of any charity – independence...

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