There will be further discussion before the public benefit accounting aspects of the ASA's proposals are finalised, says Ray Jones of the Charity Commission
The Accounting Standards Board's consultation on its revised proposals for the future of financial reporting standards in the UK might have officially closed, but I suspect there will be further discussion before the public benefit accounting aspects of these proposals are finally settled.
This time round the ASB has opted for the simple solution and the proposed general framework has raised few quibbles. The complex three-tiered framework has gone and the spectre of an extension of EU-adopted international financial reporting standards that goes beyond existing requirements has been removed.
Instead, we are offered a single standard - the Financial Reporting Standard (FRS 102) - which adopts the simpler International Financial Reporting Standard for Small and Medium-sized Entities, modified somewhat for UK reporting needs.
All of this is welcome. And while it is always a challenge getting your head around a new standard, this at least is only 250 pages, compared with the 2,500 pages of existing UK accounting principles it will replace. The concepts underpinning the proposed standard are not radically different from those of the current UK principles, but we will have to get to grips with new disclosures, some of which appear rather detailed.
More debatable is the demise of a separate public benefit entities standard, the content of which has been largely migrated into the 'specialised activities' section of the proposed single standard. This might rule out any future development of a standalone PBE standard based on a sector- specific interpretation of accounting principles. But others will argue that embedding the PBE aspects into the standard is the surest guarantee that sector needs are not forgotten as the standard evolves over time.
But simplicity can bring its own difficulties. For example, the use of fair value (market price) is often seen as the simplest approach to valuing goods and services donated for a charity's own use. But where lower-cost alternatives would just as easily meet the charity's needs, this approach can result in over-valuations. It's the old question of whether donated office space in Mayfair should be valued at a Mayfair rental when cheaper office space in Morden would be adequate.
The ASB might also have inadvertently focused too much on the form rather than the substance of funding offers. A written offer of funding by a grant-maker that it has every intention of paying would not be booked as a liability if a clause was introduced that made payment conditional on the receipt of future income by the grant-maker. Yet the same offer without that clause would indeed result in a provision for a liability.
The ASB's definition of a restriction rules out the possibility of repayment if the donation was not used for the purpose for which it was given. The result is that a restricted donation with a repayment clause might well result in the gift being recognised as income only as it's spent - an approach that turns the clock back 20 years.
Finally, the vexed debate about how charities account for government and other grants is likely to continue. The ASB wants further research. But in the meantime, does it really make sense to say a grant given to buy a building is not income, while a gift of a building is income?
The consultation may have closed, but some questions remain outstanding. They will need to be resolved if we are to avoid confusion when the new standard comes into force on 1 January 2015.
Ray Jones is policy accountant at the Charity Commission