The Accounting Standards Board (ASB) has decided to create an accounting standard for charities and other public benefit entities, as part of its work to harmonise UK accounting standards with international ones.

At the end of last month the ASB issued two new ‘exposure drafts’ that outlined its proposals for a new three-tiered approach to UK financial reporting and a new accounting standard based on the international reporting standards for small and medium-sized entities.  These proposals are now out for consultation.

According to Ray Jones (pictured), head of accounting policy at the Charity Commission, the future of the Charities Sorp is assured under these proposals.  The ASB said there was “clear evidence that the Sorps were highly regarded and had improved the quality of financial reporting in this sector”.

Early next year the ASB is expected to publish a further exposure draft on a ‘high-level’ accounting standard for charities and other public benefit entities.  Jones said this signals a “growing recognition of the importance of charity and voluntary sector accounting and reporting” and “aims to set the ground rules for some of the key issues in charity and public benefit accounting”.

“It could address some of the annoying differences between the three public benefit Sorps – for charities, universities and registered social landlords - such as accounting for capital grants,” Jones said. “It might also help resolve some of the long-standing issues in charity accounting, such as accounting for multi-year grant commitments.”

The ASB has indicated that the new framework will apply to accounting periods starting on or after 1 July 2013.  Jones said work has now begun on drafting the new ‘modular’ Sorp to fit with this implementation date.

The ASB’s consultation on its new proposals runs until 30 April 2011. Charity finance directors can download the full proposals here.