Finance: Advice line - Pesh Framjee on finance and governance

Q. We are about to restructure, which will entail significant costs.

We want to accrue these for our year ending March 2005. What are the rules?

The desire to include restructuring costs as soon as possible has often led to hasty meetings prior to the year end so that the decision to restructure is recorded and full provision is made for costs.

If your charity can avoid future expenditure by altering its future actions, no provision should be recognised. FRS12 explains that the requirements for recognition of a provision will only be met in the case of a restructuring when the organisation a) has a detailed formal plan for the restructuring, and b) has raised a valid expectation that it will carry out the restructuring by starting to implement the plan, announcing its main features to those affected by it.

For a restructuring plan to meet these requirements, its implementation must be planned to begin as soon as possible, and to be completed within a timeframe that makes significant change to the plan unlikely.

If there is to be a long delay before the restructuring begins, or it is to take place over an unreasonably long time, it is unlikely the charity will be presently committed to the restructuring. Unfortunately, the standard does not define what is "an unreasonably long time". In practice, if the period of restructuring is longer than one year I would view it with some scepticism.

Under FRS12, restructuring provisions should include only the direct expenditure and not costs associated with ongoing activity. The FRS also clarifies what constitutes restructuring and what can be included in the provision.

Pesh Framjee is head of the non profit unit at Deloitte and special adviser to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to

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