Proposed accounting rules are contrary to charity law, conference told

Pesh Framjee, of Crowe Clark Whitehill, warns that if changes are not made, the rules are likely to be subject to official protests

Pesh Framjee
Pesh Framjee

Proposed accounting rules for charities put forward by the Accounting Standards Board are contrary to charity law, the Charity Finance Group conference heard yesterday.

Pesh Framjee, head of not-for-profit at Crowe Clark Whitehill, told the conference the ASB had outlined draft rules in a consultation that closed at the end of last month.

Framjee warned that if the wording of some key areas was not changed in the final rules, those rules were likely to be subject to official protests from the Charity Commission and the Office of the Scottish Charity Regulator.

He said that concerns existed in four main areas: recognising restricted income, recognising grants receivable, recognising funding commitments, and the valuation of gifts in kind.

He said the ASB had proposed that income could not be recognised in accounts if it was possible it might have to be returned to the donor.

However, because this condition applies legally to all restricted income, this would mean that charities would often not be able to recognise the majority of their income at the time it was received, even if the possibility of repayment was extremely remote.

"But almost all income received by a charity has a possibility, however remote, that it might have to be repaid," he said.

This and other changes in rules for recognising income would massively distort the appearance of charity balance sheets, and would contradict laws on recognising income outlined in the Charities Act 2011, he said.

Framjee said he did not believe that the ASB had intended to create major changes in the way charities accounted for income, but had used wording that would lead to these changes.

"The problem is that the ASB has already had these problems highlighted to it once and not made changes," he said. "There are quick fixes in all of these cases. The Sorp Committee has told them the right words that will solve these problems.

"If the ASB doesn’t make these changes, we will see the Charity Commission, the OSCR and many others writing to the ASB and the government protesting that their proposals are contrary to charity law."

Joanna Spencer, project director at the ASB, said: "The ASB was aware of the concerns, it has spoken to the Charity Commission, and it would be addressing them."

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