Will there be a rethink on the issue of donated stock?

The ASB has had a rethink about several aspects of its new framework for financial reporting, says Ray Jones of the Charity Commission. Maybe it will look again at a new proposal that will cause particular trouble for charities

Ray Jones
Ray Jones

While many of us have spent recent weeks preparing for a new accounting framework in July 2013, the Accounting Standards Board seems to have been doing a bit of rethinking.

Back in October 2010, the ASB announced new proposals to introduce a three-tiered framework for financial reporting. The plan was for a 'no-change' option for small organisations and a move to the full EU-adopted international financial reporting standard for organisations deemed to have 'public accountability'. Those in the middle would use a cut-down version of international standards to prepare their accounts.

But things might be changing. The ASB website reports that it is likely to drop the requirement for publicly accountable organisations to report under full international standards. The latter might not now be extended beyond those organisations already required by law to apply them - listed companies. The timetable for the implementation of the new framework has also changed - the target date is now 1 January 2014.

It is not yet clear why the ASB has revised its proposals. It might have had in mind the high regulatory cost of full international standards or the need for a change in company law.

I can imagine the difficulty of defining 'public accountability' might also have been a factor. No doubt the ASB will explain in time. Certainly, for the charity sector, the full international standards would have come with a very significant weakness - they don't address the major accounting issues in public benefit accounting.

This decision demonstrates that the ASB can be flexible. So we can now wait and see whether it will prove similarly moveable on the question of valuing the stock of donated goods held by charity shops. The standard being developed for public benefit entities as part of the new accounting framework for 2014 proposes that charities should value goods donated for resale and held at their shops.

The ASB's argument is simple: the goods have been received, so they need to be valued and included in charity accounts. On a theoretical level, this has merit. But what about the practicality? The need for charities to count, value and audit the stock of donated goods - including unsorted bags of donated clothes - could create a logistical nightmare. The ASB clearly recognises this and has highlighted techniques for estimating value that might help charities avoid having to count every item in every shop.

But perhaps the ASB should consider asking a more fundamental question: is such information useful and, if so, for whom? Do people really make decisions about whether to support a charity based on the value placed on the stock at shops? All information comes at a price and, in accounting, we should balance the cost of obtaining information against the value this information might have for decision-making.

So if your charity operates shops, ask the views of your auditors. And, although the ASB's consultation has now closed, recent events suggest that it might not be too late to make your voice heard.

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