The Accounting Standards Board has recently launched what is likely to be the final round of consultation on new UK accounting standards. It's now looking odds-on that a new Financial Reporting Standard will be in place for financial years starting on or after 1 January 2015.
The way forward for larger charities using this new standard in conjunction with the charities Statement of Recommended Practice is certainly looking clearer, even allowing for a couple of significant issues that need to be ironed out. But further changes are on the way for small companies. New European accounting directives on the horizon might also indirectly affect charity reporting.
The major issue for the ASB over the past decade has been how to respond to the development of international financial reporting standards. While charities saw advantages in greater consistency with developing international accounting standards, most wanted to avoid the high cost and complexity of adopting full EU-adopted IFRSs, which had been developed primarily for global capital markets. Others quite rightly stressed the need for any new framework to recognise and respond to the specific reporting needs of charities.
The new Financial Reporting Standard addresses each of these issues. The standard is based on IFRSs for small and medium-sized entities and thus avoids the cost and complexity of full EU-adopted IFRSs. Earlier plans to extend the remit of full EU-adopted IFRSs are dropped. Welcome adjustments have also been made to preserve certain accounting treatments allowed by the existing UK standards. Plans for a separate standard for public benefit entities have been dropped, but a 'specialist section' has been introduced instead into the draft standard.
The ASB has also responded to concerns raised by charities. It's now clear that general volunteers will not be valued and included in charity accounts. The ASB has also accepted that it will often be impractical to value the stock of low-value second-hand goods held in charity shops.
However, a couple of significant issues still need to be ironed out, including when restricted income is to be recognised in charity accounts and whether having clauses in funding agreements about the availability of future income really removes the need to book a liability in the donors accounts.
It might seem that, subject to a couple of issues, albeit rather significant ones, that the way forward for charity reporting is becoming clearer. But one change rarely comes alone. A new European accounting directive aimed at reducing the number of notes required in the accounts of smaller companies is on the way. Moreover, the European Council and the European Parliament have reached agreement on radical plans that would allow member states the option of introducing a simplified framework for micro-entities.
The ASB is clear that these European plans mean the Financial Reporting Standard for Smaller Entities, or the FRSSE, a standard used by many smaller charities in conjunction with the Sorp, will need to be revised. Indeed, consultation is already planned in the first half of this year on options for revising it.
Further simplification of the FRSSE is very welcomed, but it means the next charities Sorp will be developed against a backdrop of ongoing change.
Ray Jones is policy accountant at the Charity Commission.