Highlights of the Charity Accounting Standard

The Charity Accounting Standard (CAS) was issued by the Accounting Standards Council (ASC) on 24th June 2011. The new standard which is tailored for the charity sector and its stakeholders will make financial reporting simpler and more relevant for charities while enhancing disclosures for greater transparency. Charities may opt to apply the CAS for their financial periods beginning on or after 1 July 2011. (Click here for the press release)

“But what is required in the CAS?” some of you may ask.  The key points to note in the CAS are summarised as follows.

Transition from Financial Reporting Standards (FRS) to CAS

1. For charities planning to transit from the FRS or other accounting standards to the CAS, there is a need for comparative information to be available. The financial statements prior to the year of the CAS adoption are required to be reclassified accordingly to the requirements of the CAS. If it is impractical for comparative information to be made available, this should be disclosed in the disclosure notes. (S/N 566, Pg 124 of 142)

Materiality

2. There is no need for charities to follow a requirement in the CAS if the effect of doing so would not be material. Whether or not the item is considered as material depends on whether the exclusion would change a reader’s perception of the financial statements. Do note that selected items, for example, related parties’ transactions are always considered as material, regardless of the value.  (Para A6, Pg 7 of 142)

Requirement for accounting for separate funds

3. Under the CAS, individual funds should be accounted for separately according to their terms of trust. A summary of unrestricted, restricted and endowment funds should be made available. (S/N 29 – 32, Pg 18 of 142)

Statement of Financial Activities (SOFA)

4. The commonly known Statement of Income and Expenditure (I&E) will be replaced by the Statement of Financial Activities (SOFA) under the CAS. The main difference is that there is a need for material fund categories, i.e unrestricted, restricted and endowment funds, to be distinguished and accounted for separately in the SOFA. Movements of each type of funds are to be presented separately in columns. However, for comparative figures for the previous period, only aggregate amounts are required to be presented. (S/N 42 – 44, Pg 23 of 142)
   

Balance Sheet

5. Under the CAS, Property, Plant and Equipment (PPE) and Intangible Assets should be measured at cost. Also, PPE and Intangible Assets under the CAS should not be re-valued and are not required to be assessed for impairment. (S/N 189, Pg 50 of 142 & S/N 231, Pg 57 of 142)

6. With regards to property, i.e. land & building, where there are significant differences between the carrying value and market value of properties, the market value and the basis for computation shall be disclosed in the notes to financial statements. (S/N 201, Pg 52 of 142)

7. If the charity has any monuments with preservation, conservation and education objectives, the CAS requires for this to be presented as a separate row in the balance sheet.  (S/N 205 Pg 53 of 142) Refer to the CAS for further details regarding valuation, depreciation policy and disclosure requirements for assets classified as “Preservation of Monuments”. (S/N 203 – 215, Pg 53 – 55 of 142)

8. If the charity has any cash and cash equivalent not available for use, for example, endowment funds, this shall be disclosed in the notes to financial statements. (S/N 283, Pg 66 of 142)

9. If the charity has made any non charitable activities related loans, this shall be disclosed in the notes to financial statements. Disclosure is required even for loans repaid within the financial period. (Refer to the CAS for details on the disclosure requirements) (S/N 280, Pg 66 of 142)

Other than differences in presentation and disclosure requirements of the financial statements, relevant details regarding proper recognition of income and expenditure within the charity sector are also provided under the CAS.

Recognition of Income

10. If donations or income are raised by individuals not contracted or employed by the charity, the charity should account the net proceeds remitted by the event organisers after deducting their expenses, as the gross income. All other incomes are to be reported at gross. (S/N 52, Pg 25 of 142)

11. In the event that donations in kind are received by charities, the value of the donation should be valued based on best estimate of the price that charities will have to pay in the open market for an equivalent item.  Disclosure is required if the value cannot be estimated reliability. (S/N 86, Pg 31 of 142)

12. When charities receive grants and donations with condition attached, grants and donations with condition attached should only be recognised as income if it is within the recipient charity’s control to meet the conditions required. Otherwise, recognition  should be deferred until the conditions are fulfilled.(S/N 59, Pg 26 of 142)

13. For donations in kind, and grants and donations which are received specifically for funding of an item of property, plant and equipment, the charity should recognise the income in full and not defer over the useful life. (S/N 72, Pg 28 of 142)

14. In the event that funds are received by the charity in its capacity as trustee or custodian, these should not be recognised as income in the SOFA. The funds received and corresponding liabilities should be presented net in the Balance Sheet. (S/N 75, Pg 29 of 142)

Recognition of Expenses

15. If the charity incurred expenses to fulfil the requirements for performance related grant, the amount of expenses recognised should be apportioned accordingly to the extent that the charity has provided the specific goods and services. (S/N 107, Pg 35 of 142)

16. Under the CAS, expenditure is to be presented in 3 main broad categories in SOFA, i.e. costs of generating funds, costs of charitable activities and governance costs. (Refer to the CAS for details on the expenditures included within each broad category) (S/N 127, Pg 38 of 142)

17. Under the CAS, capitalization of borrowing costs is not allowed. This includes borrowing costs which can be directly attributable to the construction of a qualifying asset.. (S/N 182, Pg 49 of 142)

iServe, as the appointed finance & accounting shared services partner of the Charity Council, is pleased to offer our services to charities who wish to either adopt or to transit to CAS for their financial reporting. For more information, please call iServe hotline at 8139 3332.