Financial Reporting In The Charities Sector

The ASB has issued an exposure draft of the proposed public benefit entity accounting standard.

The UK Accounting Standards Board (the ASB) has a current project called "The future of UK GAAP" with the long-term goal of converging UK Generally Accepted Accounting Practice (UK GAAP) with International Financial Reporting Standards (IFRS). The initial ASB proposal was for a three-tier approach.

Tier 1

Full IFRS should apply for publicly accountable entities. It is proposed that publicly accountable entities should include those with listed debt or equity instruments, or entities that hold assets on behalf of a large group of outsiders (e.g. banks, insurance companies). There will be a small number of charities that fall within this tier. The Companies Act will have to be amended to allow charities to apply IFRS as this is currently not permitted under UK law.

Tier 2

Entities that are not publicly accountable but do not meet the small company criteria as defined by statute will apply the Financial Reporting Standard for Mediumsized Entities (FRSME), a proposed UK version of IFRS for medium-sized entities.

Tier 3

Entities that are not publicly accountable and qualify as small companies can prepare accounts under the existing UK Financial Reporting Standard for Smaller Entities (FRSSE).

In response to public consultation, the ASB has suggested that these proposals might be changed, so that:

tier 1 would be applicable only to those entities required by law or other regulation to use full IFRS the FRSME would be changed to allow greater consistency with existing UK GAAP and full IFRS the effective date will be put back from 1 July 2013 to 1 January 2014. The FRSPBE

The FRSME has been developed for use by for-profit entities. The ASB is developing the Financial Reporting Standard for Public Benefit Entities (FRSPBE) for not-forprofit entities that will follow the FRSME, and issued an exposure draft (FRED 45) of this in March 2011.

The FRSPBE will be mandatory for public benefit entities (PBEs) applying the FRSME and will be considered best practice for other PBEs. The aim of the FRSPBE is to provide guidance on transactions which are unique to not-for-profit entities and are not covered by the FRSME.

PBE statements of recommended practice (SORPs) will be retained as part of the financial reporting framework. The Charities SORP Committee is currently developing a new SORP which reflects the proposed changes. The draft of this will not be issued for...