Changes to new draft SORP for charity accounting and reporting following consultation responses

31 Mar, 2014

The Charity Commission for England and Wales (Charity Commission) and the Office of the Scottish Charity Regulator (OSCR) have today published the analysis of responses received in relation to their Exposure Draft ("ED") of a revised Statement of Recommended Practice (SORP) setting out a new framework for charity accounting and reporting (“the Charities SORP”). The analysis identifies key decisions made by the Charities SORP Committee and highlights changes agreed as a result of comments received by respondents.

The Charity Commission and the OSCR published the original ED in July 2013 with a comment period ending in November 2013.  The Exposure Draft set out proposals for accounting and reporting by charities in the context of the new accounting framework introduced by Financial Reporting Standard (FRS) 102 applicable in the UK and Republic of Ireland for financial years beginning on or after 1 January 2015. 

Responses to the ED were considered by the Charities SORP Committee at their meetings of 9 and 26 January and 12 February 2014.  As a result of this analysis a number of key decisions were made over the ED and changes to the SORP agreed.  Some of the key decisions and changes include: 

  • Although many respondents “strongly supported” the retention of the columnar approach, the Charities SORP Committee agreed that charities may opt for a single column Statement of Financial Activities (SOFA) if only one class of funds is material and all other classes of funds are immaterial.
  • Corporate entities are to be specifically excluded from the definition of a branch (as supported by 62% of respondents) and when these are controlled by a charity they should be treated as a subsidiary.
  • All charities (as opposed to just larger charities as proposed in the ED) will be required to report staff salaries paid in bands of £10,000 for employees earning over £60,000.  It was also agreed that larger charities would need to disclose their remuneration policy for the pay of senior staff in their trustees’ annual report. 
  • No requirement for separate disclosure of income from government sources.
  • Incorporating into the SORP advice on combining the Strategic Report required of medium and large UK registered charitable companies and the trustees’ annual report.
  • Changes to the text of the SORP to include greater clarity and more guidance on the recognition legacy income and the UK retail GIFT Aid scheme.
  • The reinstatement of the disclosure of all ex-gratia payments at the request of funders as they considered that this is valuable information. 

Additionally, the Charity Commission and the OSCR have announced that there will be two SORPS; one based on FRS 102 and another based on the Financial Reporting Standard for Smaller Entities (FRSSE).  This decision was taken to ensure that when the current FRSSE framework is amended (in light of the new EU Accounting Directive), this would not disrupt non-FRSSE users (the majority of charities preparing accounts) who could continue to apply the separate FRS 102-based SORP.  A separate SORP based on the FRSSE would also allow the SORP to be specifically tailored for the requirements of the FRSSE and meets the demands of a minority of respondents who commented that the combined approach in the ED “gave insufficient attention to the FRSSE due to the inappropriate application of FRS 102 terminology and accounting treatments for issues specifically addressed by the FRSSE". 

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New FRC Financial Reporting Lab project: Disclosure of Dividend Policy and Capacity

31 Mar, 2014

The Financial Reporting Council's (FRC's) Financial Reporting Lab (the Lab) is undertaking a project on the effective communication and disclosure of dividend policy and capacity. The project will assist companies in better understanding investor concerns on current practices.

The Lab is inviting listed companies and investors / analysts to participate in the project, which will examine the reporting of information such as a company's track record of paying dividends and, where companies hold high levels of cash, how they plan to use it. These disclosures are seen as particularly relevant given developments around the strategic report and the reporting of solvency and liquidity risks. Communication by companies via their annual reports, their websites and their presentations to investors will all be considered.

Companies and investors / analysts that are interested in participating in the project should contact the Lab during April.

Please click for further information on the FRC website.

Latest IASB 'Investor Perspectives' published

31 Mar, 2014

The International Accounting Standards Board (IASB) has released another edition in its 'Investor Perspectives' series. In this edition, Patricia McConnell (member of the IASB) provides her perspectives on the IASB’s changes to accounting for own credit.

The article discusses the benefits of excluding the own-credit gain or loss adjustment from profit or loss. The early adoption allowance of IFRS 9 permits companies to move own-credit gain or loss into other comprehensive income.

Click to view Investor Perspectives — One fewer non-GAAP adjustment to worry about: Improvements to the accounting for changes in own credit (link to IASB website). All Investor Perspectives are archived on the IASB's website.

BIS publishes consultation on country-by-country reporting in the extractive industries

31 Mar, 2014

The Department for Business, Innovation and Skills (BIS) has published a consultation on proposals to implement the country-by-country reporting requirements for large extractive companies introduced by the European Union (EU) Accounting Directive.

Chapter 10 of the EU Accounting Directive (Directive 2013/34EU (link to European Commission website)) (“the Directive”) (and changes made by Directive 2013/50/EU (link to the European Commission website) to the Transparency Directive (2004/109/EC)) require listed and large non-listed companies with activities in the extractive industry and the logging of primary forests to report any payments made to governments on a country-by-country basis in an effort to improve the transparency.  The Directive was published in the Official Journal of the European Union on 29 June 2013 and EU Member States have until 20 July 2015 to incorporate the rules into their national law.  BIS propose to introduce the requirements during 2014. 

The Directive fixes the content of the reports that must be provided and provides limited flexibility for EU member states to use their discretion when implementing.  However there are certain areas that the consultation is seeking responses, the main areas being: 

  • Timetable for implementation in the UK.  BIS propose that the first report should be prepared in respect of financial years commencing on or after 1 January 2015.
  • Timeframe for the publication of the reports.  BIS propose that unlisted UK registered companies, including public companies, are required to publish the extractive report no later than 11 months after the end of their financial year.  BIS comment that when the requirements of the Transparency Directive are transposed into UK law, as companies subject to those requirements will have a shorter timeframe to prepare their reports these companies will have to comply with the shorter timeframe.
  • The format of the extractive report.  An illustrative example is provided within the consultation.
  • Filing of extractive reports with Companies House.  BIS propose that extractive reports should be filed in electronic format with Companies House.
  • Penalties for non-compliance.  BIS propose a similar penalty regime to that currently in place for failure to prepare and file statutory accounts and reports. 

The consultation is relevant to large UK registered extractives companies and UK listed extractives companies as well as civil society organisations with an interest in extractives transparency.  Responses are requested until 16 May 2014. 

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Research paper on the IASB Conceptual Framework project

31 Mar, 2014

A research paper showing discussions and views on a number of important issues that are raised in the IASB Conceptual Framework project from an academic and research perspective has recently been published in 'Abacus'.

The authors discuss (excerpts from their summary):

  • The role of the Conceptual Framework and the basic question whether a conceptual framework should serve as a basis for deductive reasoning or whether it is just an attempt to rationalize existing standards;
  • Objectives and uses of financial reporting with the revised Conceptual Framework defining decision usefulness to capital providers as the overarching objective, while stewardship is only a secondary objective and seemingly regarded as one that seems not to be able to conflict with decision usefulness;
  • Prudence and the controversial issue of removing the concept altogether in the 2010 revision of the Conceptual Framework;
  • Uncertainty in recognition of assets and liabilities and the proposal in the Discussion Paper DP/2013/1 A Review of the Conceptual Framework for Financial Reporting that the definitions of assets and liabilities should not include any particular probability thresholds;
  • Derecognition and the claim that from a conceptual perspective there is no need for special derecognition principles in a conceptual framework; and
  • Measurement issues and the distinction between recognition and measurement.

The aim of the paper is to contribute to the current debate on objectives of financial reporting and prudence. The paper was published in Abacus and can be downloaded through Wiley Online: Revisiting the Fundamental Concepts of IFRS. One of the authors (Professor Araceli Mora) has kindly also contributed an exclusive three-page summary of the paper for IAS Plus.

We thank the authors for allowing us to make the results of their research available on IAS Plus.

Agenda for the April 2014 IFRS Foundation Trustees meeting

31 Mar, 2014

An agenda has been released for the upcoming meeting of the IFRS Foundation Trustees, which is to be held in Sydney on 10 April 2014.

The agenda for the meeting is summarised below:


IFRS Foundation Trustees meeting (11:30-13:00 AEST / 01:30-03:30 UTC)

  • Report of the Chair of the IFRS Foundation
  • Report of the Chair of the International Accounting Standards Board (IASB) and IASB technical staff
  • Report of the Due Process Oversight Committee (DPOC)


Agenda papers for the meetings will be made available on the IASB's website in due course.

March 2014 IASB meeting notes — Part 5 (concluded)

30 Mar, 2014

The IASB's meeting was held on 13–21 March 2014, some of it having been a joint meeting with the FASB. We have now posted the remaining Deloitte observer notes from the IASB-only sessions on proposed amendments to IAS 1 as regards classification of financial liabilities, issues from the Interpretations Committee and the equity method in separate financial statements.

New SORP published for Further and Higher Education

28 Mar, 2014

The Further and Higher Education SORP Board (the SORP Board) has published a revised Statement of Recommended Practice (SORP) setting out proposals for accounting for further and higher education institutions in the UK.

SORPS issued by the SORP Board apply to further and higher education institutions preparing accounts under UK GAAP to present a ‘true and fair view’ and are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique to the sector within which such institutions operate.  The SORP is also intended to: 

improve the quality of financial reporting by institutions;

enhance the relevance and comparability of, and the ability to understand the information presented in institution’s financial statements;

provide clarification, explanation and interpretation of accounting standards and their application to sector specific transactions; and

assist those who are responsible for the preparation of the financial statements. 

The SORP updates the previous SORP (link to Universities UK website) to include the requirements of FRS 100 ‘Application of Financial Reporting Requirements’, FRS 101 ‘Reduced Disclosure Framework’ and FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'; the three main standards that were introduced as a package to replace UK GAAP. 

The new SORP will result in a number of changes on how further and higher education institutions present financial performance, assets and liabilities in their financial statements.  The most significant changes are:

  • Changes to existing terminology to reflect FRS 102 most notably the Income and Expenditure Account becoming the ‘Statement of Comprehensive Income’ and the Statement of Recognised Gains and Losses becoming ‘Changes to Reserves and Funds’;
  • Changes to accounting for endowments and donations as a result of the new revenue recognition rules. 
  • Allowing an accounting policy choice of applying the accrual model or the performance model when accounting for government grants except for capital grants of land which must be accounted for in accordance with the performance model.
  • The requirements to record a liability in respect of a defined benefit multi-employer scheme.  The SORP states “where an institution participates in a defined multi-employer plan and sufficient information is not available to use defined benefit accounting and the institution has an obligation to fund past deficits within the scheme, the institution must recognise a liability on the Balance Sheet for this obligation”. 
  • The requirements to account for certain student accommodation arrangements with third parties as finance leases on the Balance Sheet; and
  • The requirement to report certain assets and liabilities at fair value in the Balance Sheet.
  • The requirement to recognise non-exchange transactions under the performance model.

The final SORP is effective for accounting periods beginning on or after 1 January 2015.  Early adoption is permitted if FRS 102 is adopted early and the accounts direction of the relevant funding body permits it.

Click for further information from the SORP Board on the development of the SORP and a copy of the final SORP (link to further and higher education SORP website).

European Commission package of measures on long-term financing

28 Mar, 2014

The European Commission has adopted a package of measures to stimulate new and different ways of unlocking long-term financing and support Europe's return to sustainable economic growth. The measures build on the responses to the Commission's Green Paper consultation on the long-term financing of the European economy of March 2013. They include measures in connection with accounting standards.

Much of the debate around the Green Paper had been focused on the question whether fair value accounting leads to short-termism in investor behaviour. Many respondents had pointed at the wide range of factors that contribute to short-termism and stated that fair value accounting principles of themselves do not lead to short-termism in investment behaviour (see comments by IASB, EFRAG, FEE). Respondents had also commented on the significance of the IASB Conceptual Framework for ensuring that future accounting standards are developed in a way that is not damaging to long-term investment. They also pointed to the ongoing work of the IASB to review the accounting of financial instruments.

In the communication describing the package of measures, the European Commission has widened the discussion again including the review of endorsement criteria in connection with the planned reform of EFRAG and the conditions around the continued EU co-financing of the IFRS Foundation and has also included considerations around SME accounting as SMEs are regarded as key contributors to sustainable growth.

The actions the Commission intends to take are the following (reproduced from the communication):

  • In the framework of its endorsement of the revised IFRS 9, the Commission will consider whether the use of fair value in that standard is appropriate, in particular regarding long term investing business models.
  • The Commission will invite the IASB to give due consideration to the effect of its decisions on the investment horizons of investors both in specific relevant projects and in its development of the Conceptual Framework, paying particular attention to the reintroduction of the concept of prudence.
  • The Commission services' evaluation of the IAS Regulation will explore with stakeholders in the course of 2014 the appropriateness of the endorsement criteria, taking account of Europe's long-term financing needs.
  • The Commission services will launch a consultation in 2014 to examine (i) the case for a simplified accounting standard for the consolidated financial statements of listed SMEs, and (ii) the usefulness of a complete self-standing accounting standard for non-listed SMEs to supplement the Accounting Directive.

Please click for the following information on the European Commission website:

EFRAG fears breach of IAS 1 principle

28 Mar, 2014

The European Financial Reporting Advisory Group (EFRAG) has written to the IASB to express serious concerns about the forthcoming amendments to IAS 28 'Investments in Associates and Joint Ventures' in relation to other net asset changes when applying the equity method of accounting.

EFRAG states that the envisaged amendments would conflict with the fundamental IAS 1 principle that only transactions with equity holders impact equity directly. Moreover, economically similar transactions (direct and indirect acquisitions and disposals) would be accounted for differently. And lastly, EFRAG claims that the amendments would lead to a deferred recognition of losses as reductions in the carrying value of an investee due to dilution would only be recognised in profit or loss when the equity method is no longer applied. EFRAG also points out that the amendments would require modifying the prevailing practice in Europe.

In the letter, EFRAG mentions that the majority of respondents to the IASB's exposure draft ED/2012/3 Equity Method: Share of Other Net Asset Changes (Proposed amendments to IAS 28) did not support the proposals and that at the March 2014 meeting of the Accounting Standards Advisory Forum (ASAF), EFRAG and other ASAF members voiced concerns regarding the IASB's decision to continue with the proposals as exposed despite opposition from a significant majority of respondents to the due process.

The EFRAG letter contains an alternative accounting model largely based on the recommendations made by the IFRS Interpretations Committee to the IASB when the issue was separated out from the annual improvement process. This alternative approach does not have the problems described.

Please click for access to the following information on the EFRAG website:

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