Community Accountants Conference
What’s changed and what’s changing…
2 February 2012
Ray Jones – Head of Accountancy Policy
What’s changed and what’s
changing…..
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A new strategic plan for Commission
A new accounting framework for the UK
A new approach to investments
A new (but same) Charities Act
Feedback from Consultation
• Given resource pressures the Commission needs to
focus on core duties, including:
• registration of charities
• providing guidance
• statutory advice or permissions
• ensuring transparency through annual returns
• investigation of alleged wrongdoing
Strategic Plan 2012 - 15
Two key areas of priority for the next four years:
– Developing accountability and compliance of
sector; and
– Developing self-reliance of the sector
Developing accountability
• Rigorous approach to granting charitable
status
• Holding charities to account (review of
information we require of charities)
• Promote need for charities to file on time
Online filing…
• Over 90 per cent of charities file Annual Return
on line
• But only around 60 per cent file accounts on line
• Why is this?
• Absence of a "trusted intermediaries" log on for
accountants ?
• Unsure about how to convert to PDF (there are
lot's of free packages on the web) ?
• We advise customers to go onto Google and
type in “pdf converter”
Developing compliance
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Timely action
Decisive interventions
More proactive
More co-ordinated
New Risk Framework
The risk assessment :
• Does the Commission need to engage?
• If it does, what is the nature and level of risk?
• If it does, what is the most effective response?
New Risk Framework
• Single point of contact:
First Contact (enquiries@charitycommission.gov.uk)
• First stage filter:
– Is it for the Commission?
– Is it straightforward or requires web guidance?
– refer to specialist teams
• Concerns about non-compliance passed to:
– Operations Units, or in the most serious cases to:
– Investigations and Enforcement
What the Commission will not
do in future …
We will not :
• give advice to individual charities if the guidance is on
our website
• get involved where a member of the public disagrees
with decisions made lawfully by the charity’s trustees
• engage in internal or external disputes that are the
responsibility of trustees to resolve
• engage in issues that do not pose a serious risk to a
charity’s status, assets, services or beneficiaries
• deal with incidents of poor service from a charity were
there is no general risk to its services, its beneficiaries
or its resources
• get involved in issues that are the responsibility of
another statutory or supervisory body
Future of UK GAAP
Remember the tiers
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Tier 1 - EU adopted IFRS
Tier 2 - The FRSME
Tier 3 - The FRSSE
Plus a PBE Standard…
A new accounting framework?
• Accounting periods commencing 1January 2015
• Tier 1 - No extension of EU- adopted IFRS beyond that
currently required by law
• Tier 2 – The proposed Financial Reporting Standards
for Medium-sized Entities (the FRSME)
• Tier 3 - The Financial Reporting Standards for Smaller
Entities (The FRSSE)
• Public Benefit Entity Standard (The PBE Standard) –
will be incorporated into FRSME
• Receipts and Payments – not subject to accounting
standards
Full EU –adopted IFRS
• ASB to remove definition of ‘public
accountability’ from framework
• No extension of EU-adopted IFRS (Tier 1)
beyond current requirements in law
• Only companies (other than charities) with
securities admitted to trading on a regulated
EEA must apply EU-adopted IFRS
• No charity will be forced into Tier 1 reporting
Tier 2 – the FRSME
• Based on IFRS for SMEs – initially plan was for minimal
change … but significant changes now expected
• The FRSME to be reissued for consultation in early 2012
• Amendments likely to allow accounting options provided
in UK GAAP ( e.g.. Revaluation and capitalisation of
interest on developments)
• Amendments to facilitate Company Law formats
• Additional disclosure of Financial Instruments applying
to Financial Institutions
• The PBE Standard be incorporated into the ‘FRSME’ –
setting out ‘what’s different’ for PBEs
Tier 3 - the FRSSE
• The Financial Reporting Standard for Smaller
Entities
• Based on company law framework for small
companies
• EC proposals to amend Accounting Directives
– Increased thresholds for small companies
– Simpler notes for small companies
• ASB indicate that FRSSE will be retained but
revised in line with new directives
• ASB propose consultation on FRSSE later in
2012
FRSSE Thresholds – EC proposals
• Currently an entity is • Proposal - small if not
exceeding 2 of the
small if not exceeding
following:
2 of the following:
– Assets of EUR 5 m
– Assets of £3.26m
(approx. £ 4.417 m)
– Net turnover of
– Net turnover of
£6.5m
EUR 10 (approx
– 50 employees
£8.834 m)
– 50 employees
What about the PBE Standard ?
• The Public Benefit
Entity Standard
• Recognition by ASB
that commercial
standards did not
address key PBE
issues
• ASB now propose to
address PBE issues
by supplementary
paragraphs within the
FRSME
The PBE standard – what it
covered
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Concessionary loans
Property held for social benefit
Entity combinations
Impairment of assets
Funding commitments
Income from non-exchange transactions
Heritage assets taken into FRSME
Receipts and payments
accounts
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Unaffected by accounting standards
Only applicable if charity is not a company
But will be an option for CIO when available
Charities Act review might look at thresholds
(income of £250,000 or less) and need for format
rules – but no changes predicted
• August 2011 – BIS consultation on accounting
for Micro Entities ( EC proposals to exempt from
4th Directive)
• Proposals received mixed reception from
accountancy profession in UK
What about SORP
• SORP will need to be updated
• Needs to address charities using
either:
– The FRSSE; or
– The FRSME
• Need to be in place by 1 January 2014
• ASB promise 18 months between
finalising new standards and their
application
• A modular web-based SORP –
download what is relevant
A modular web-based SORP
Choose framework
FRSSE
(choose modules)
FRSME
(choose modules)
Modules
(activity specific)
Modules
(activity specific)
New time-line
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ASB re-consult on framework and FRSME in early 2012
ASB consult on FRSSE in 2012
New EC rules for micro entities and small companies?
New SORP and accounting regulations ideally needed by
1 January 2014
• Implementation of new framework for accounting
periods commencing on or after 1 January 2015
Charities and investment
• In 2010 – registered charities
held £78bn as investments
• Traditionally investment held to
provide income that supports
charitable purposes
• But charities increasingly
interested in moving beyond
conventional investments and
looking to invest in further aims
more directly
Motives may differ…
• Financial investments
• Programme related investments
• Mixed motive investments
Financial investment
• An asset held to provide the best financial
return (income or gain) within the level of risk
considered to be acceptable
• Trustees can invest in any asset that is
intended to produce income and/or gain
subject to investment powers
• Need to meet trustees’ investment duties
• Need to be aware of tax rules
Trustees’ duties when investing…
• A duty of care
• Consider how suitable any investment is for their
charity
• Consider the need to diversify investments
• Take advice from someone experienced in investment
matters where they consider they need it; and
• Review investments (and their investment manager)
from time to time, changing them if necessary.
These legal requirements do not apply to trustees of
charitable companies. However, they should adopt
these principles as good practice when making
investment decisions.
An ethical stance to investment
The law permits an ethical approach if:
• a particular investment conflicts with the aims
of the charity; or
• the charity might lose supporters or
beneficiaries if it does not invest ethically; or
• there is no significant financial detriment.
Programme related investment
• A programme related investment is
investment made by a charity specifically to
further its aims for the public benefit.
• This means that the rules on financial
investment, for example in the Trustee Act
2000, do not apply. However, while PRI is
bound by different rules, it can still be
considered as a form of investment.
Mixed motive…a new category?
• Some charities seeking both a financial and
charitable return find they are unable to
justify making the investment solely on the
basis of it either furthering the charity's aims
or as a financial investment.
• We consider that the law permits, where it can
be justified in advance of the investment
decision, a mixed purpose investment.
Best interest of the charity…
Core question – can trustees demonstrate they
are acting in best interests of their charity by
either investing for:
– Best financial return (financial investment)
– Furthering the charity’s aims (programme
related investment)
– Or doing both (mixed motive investment)
Charities Act 2011
• The Charities Act 2011 consolidates previous
charity legislation into a single Act.
• The implementation date is 14 March 2012.
• Refer to the provision of the Charities Act
2011 on documents executed on or after 14
March 2012
• Refer to the provisions of the Charities Act
1993 (or other relevant legislation) in
documents executed before 14 March 2012
Charities Act 2011
Download 2011 Act:
www.legislation.gov.uk/ukpga/2011/25/enacted
Download destination tables:
www.legislation.gov.uk/ukpga/2011/25/resources
New references for
independent examination
• Independent examiners following the 2011 Act
would state that:
– Their examination of the accounts was under
section 145 of the Act.
– They follow the Directions made under section 145
(5) (b) of the Act.
– The charity keeps accounting records under
section 130 of the Act.
– The accounts comply with the requirements of the
2011 Act.
Review of Charities Act
• Lord Hodgson of Astley Abbotts to report to
Parliament by 17 July 2012?
• Lord Hodgson will issue a call for evidence from
charities and others
• Possible issues:
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Commission’s funding
Tribunal
Social investment/social enterprise/mixed purpose investments
Volunteering
Calman Report and definition of charities and passporting
Fundraising, self regulation and collections
Thresholds
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