In our autumn 2011 charities newsletter we reported on the UK Accounting Standards Board's (ASB) proposed public benefit entity accounting standard, the FRSPBE, which was issued in exposure draft form for comment in March 2011. Since the publication of that newsletter, the ASB has decided to incorporate the requirements of the FRSPBE into the Financial Reporting Standard for Medium-sized Entities (the FRSME) and not issue separate guidance for public benefit entities (PBEs). The ASB has also decided to update the Financial Reporting Standard for Smaller Entities (the FRSSE) to require PBEs to have regard to the PBE requirements of the FRSME.
We noted in the previous edition that the effective date for application of the new accounting standards had been put back from July 2013 to January 2014. However, in November 2011 the ASB announced that this was likely to be postponed even further, to 1 January 2015. This delay may have a knock-on effect on the publication of the charities Statement of Recommended Practice (SORP), as certain modules of the new SORP are in draft format subject to the publication of the final version of the FRSME.
The ASB is considering the feedback received in response to the consultation on the FRSPBE exposure draft and has tentatively agreed to change the proposed treatment of donated goods. The change will allow for income to be recognised when goods are sold if it is not practical or beneficial to estimate the fair value of the goods at the point they are received by the entity. The ASB hopes that this will mitigate the concerns raised during the consultation period in respect of the recognition of low value items donated to charity shops. This does appear to go some way to reducing the issue, but still leaves significant room for inconsistency of approach between entities and therefore is not an ideal solution. The option of a cost-benefit argument may be difficult to apply in practice and could lead to disagreement between PBEs and their auditors.
The ASB has also made further announcements in relation to property held primarily for the provision of social benefit, for example housing properties for social rent. The draft FRSPBE required that these be held as property, plant and equipment and did not permit classification as investment properties.
The implication of this was that under the new standards, as they were initially proposed, it would not have been possible to revalue property held for the provision of social benefit. However, the ASB has reconsidered this and agreed that accounting options currently permitted under United Kingdom Generally Accepted Accounting Practice (UK GAAP) will be included in the next draft of the FRSME. This means that it should be permissible to include properties held in property, plant and equipment at a market valuation instead of at cost.
The ASB has announced that a revised exposure draft of the FRSME will be issued which incorporates the changes noted here, so you should expect to see further updates in future issues of this publication.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
