SORP 2015 the move to FRS 102 Presented

SORP 2015, the move to FRS 102 Presented by Helen Blundell June 2016 © MHA Mac. Intyre Hudson 2015

SORP 2005 to SORP 2015 Year ends beginning on or after 1 Jan 2016 SORP 2015 (FRS 102) SORP 2005 SORP 2015 (FRS 102) SORP 2015 (FRSSE) Update bulletin 1 © MHA Mac. Intyre Hudson 2015

Update bulletin 1 • Confirms that larger charities are those with income > £ 500 k (and not those subject to audit) • Charities below £ 500 k income do not need to prepare a cash flow statement • Extends definition of related parties • Some small tweaks/clarifications in: • • Donated goods, facilities and services Accounting for groups Impairment of assets Charity mergers © MHA Mac. Intyre Hudson 2015

Transition dates • Applies for year ends beginning on or after 1 January 2015 • Comparatives must be restated on same basis therefore – Figures at 31 December 2015 (or 31/3/16) – Figures at 31 December 2014 (or 31/3/15) – Figures at 31 December 2013 (opening position) (or 31/3/14) or if applied FRSSE SORP for 1 year then dates move forward by one year © MHA Mac. Intyre Hudson 2015

Key Points • MUST – • Should • May © MHA Mac. Intyre Hudson 2015 if don’t do, not SORP compliant!

FRSSE to FRS 102 Trustees report no changes SOFA positioning of investment gains and losses Balance sheet no presentational difference, values affected by accounting treatments in some areas Cash flow new unless eligible to adopt Update exemption Other areas donated goods, discounting liabilities > 1 year, recognition of holiday pay accruals, additional related party disclosures, heritage assets, social investments, valuation options, leases © MHA Mac. Intyre Hudson 2015

Definitions Fair value The amount at which an asset or liability could be exchanged or settled in an arm’s length transaction between informed and willing parties Discounted present value Calculation of time value of money FRS 102 - calculate with reference to market rate (ie rate at which could borrow) (FRSSE referred to UK Government bonds) 7 © MHA Mac. Intyre Hudson 2015

SOFA FRSSE Total income Expenditure Raising funds Charitable exp Other A B 1 B 2 B 3 Total expenditure Net income/expend Transfers C Gains on f. a revaln D 1 Net gain/loss on invs D 2 © MHA Mac. Intyre Hudson 2015 FRS 102 Total income Expenditure Raising funds Charitable exp Other Total expenditure A B 1 B 2 B 3 Net gain/loss on invs B 4 Net income/expend Transfers Gains on f. a. revaln C D

Fixed assets and stock • Fixed assets transitional revaluation can then be used as ‘deemed cost’ – uplift opportunity? • Stock held for free distribution – include at fair value as adjusted to reflect lower of deemed cost adjusted for loss of ‘service potential’ and replacement cost • Goods provided free as part of charitable activity should not be written down to nrv but included based on service potential 9 © MHA Mac. Intyre Hudson 2015

Investments • Value initially at cost then at fair value • Social investments separate class • Investment properties - regular valuation by independent expert • Mixed use property – apportioned unless impractical • Property let by/to group - investment © MHA Mac. Intyre Hudson 2015

Heritage assets • historical, artistic, scientific, technological, geophysical or environmental qualities • contributes to knowledge and culture through its retention and use • accessible to the public for viewing and /or research Cost or valuation Dropped link to charity objects- potential to capture more © MHA Mac. Intyre Hudson 2015

Loans and grants • Concessionary loans made/received > 1 year – either – Amount outlayed less repayment and adjusted for interest and impairment, or – Fair value and then amortised cost using effective interest method • Grant commitments likely to be settled more than 12 months after recognition – calculate net present value © MHA Mac. Intyre Hudson 2015

Pension liabilities Multi employer schemes where agreement to make additional contributions on current/past service of employees – liability must be recognised for the present value of outstanding additional contributions © MHA Mac. Intyre Hudson 2015

Cash flow statement If income < £ 500 k then optional for year ends beginning on or after 1 January 2016 (or 2015 if early adopt Update and applying FRS 102) • Cash flows from operating activities • Receipts/payments not falling under the other headings • • • Cash receipts from interest/dividends received Cash receipts from rental income Cash receipts/payments from purchase/sale of fixed assets/investments • • Cash • Cash flows from investment activities • From financing activities receipts from donations of endowments receipts from new loan borrowing repayments of borrowing such as loans and mortgages payments re finance leases Remember to adjust out for non-cash movements (ie depreciation, gifts in kind) © MHA Mac. Intyre Hudson 2015

Expenditure • Lease incentives - spread over the total lease (rather than as currently to the break clause) • Holiday pay accrual © MHA Mac. Intyre Hudson 2015

Related parties • Trustees (and offspring, (grand)parents, siblings) • Officer, agent or member of key management personnel of charity Donor of land to the charity • Spouse of any of the above • Business partner of any of the above • Person or close member of person’s family who has control/joint control of charity or significant influence over charity Update bulletin • Entity which provides key management personnel to the charity © MHA Mac. Intyre Hudson 2015

Related parties • Unless immaterial, total of expenses waived by trustees must be disclosed • Total donated by trustees must be disclosed (if unrestricted giving) • Restricted giving by trustees must be disclosed separately • Redundancies/termination payments for any staff • Total paid (including benefits) to key management personnel • Contributions to pension schemes © MHA Mac. Intyre Hudson 2015

Transition • Window of opportunity – but be clear on the benefits and longevity • Statement of cash flows • Restating comparatives and collecting data (especially new items) • Extra work and additional information (e. g. discounting) © MHA Mac. Intyre Hudson 2015

Other specific modules • Funds received as agent or custodian trustee • Accounting for groups/consolidation • Charities as subsidiaries • Retirement benefits © MHA Mac. Intyre Hudson 2015

Further information www. charitycommission. gov. uk www. charitysorp. org Helen Blundell helen. blundell@mhllp. co. uk © MHA Mac. Intyre Hudson 2015