Get involved in the debate about Fred 48, urges Rui Domingues, or rue the consequences.

The UK has seen a resurgence in public demonstrations of discontent. The trade union Unite believes there are no problems with holding strikes aimed at disrupting the Olympics this summer, and the recent occupation outside St Paul’s in London aimed to draw attention to economic inequality, corporate greed, and a lack of transparency and accountability in the City. As a not-for-profit finance professional, are you feeling left out?

Fear not. The latest financial reporting proposals, issued in January by the Accounting Standards Board (ASB), provide us with a chance to register our own discontent – albeit in a way that feels comfortable to us as more conservative members of society.

New proposals

As discussed in more detail on pages 44-45, the ASB has significantly revised its proposals for the financial reporting framework that will apply to both charities and small and medium-sized companies. A new financial reporting exposure draft (Fred 48) sets out these proposals. The aim is for one future financial reporting standard (FRS) to replace all UK GAP, and for it to be used as the basis for constructing a new charity Sorp.

The ASB has listened to the consultation undertaken last year. It is not issuing a separate financial reporting standard (FRS) for public benefit entities (PBEs). Instead, it has incorporated any PBE-specific requirements into the Fred. As Sorps cannot issue guidance that is contrary to financial reporting standards, this means that if the Fred – from which the FRS will flow – isn’t right, then we may end up with new accounting guidance for charities that does not reflect the reality of our transactions.

Therefore, it is really important that we, as charity finance leaders, engage with the consultation process and understand the implications and potential impact of the proposals.

I know that, as part of my dayjob, I should have a thorough grasp of all the intricacies of the financial reporting environment for charities. But – and I suspect I’m not alone in feeling this – not many of us do. So we rely on the expertise of our professional advisers, policy staff at the Charity Commission, and on sector bodies like the Charity Finance Group (CFG).

From the chats I’ve had with sector experts who have spent time analysing Fred 48, some of their concerns could result from a paucity of sector knowledge at the ASB. Also of concern is the hurried integration of the previous draft PBE-standard into the new Fred. The kindest statement I’ve heard so far from anyone who has studied the Fred is that “it appears to be flawed”.

Whatever the cause or causes, this has led to a number of concerns about the draft. For example:

• An indication in the Fred that income may have to be repaid if not used for a specific purpose, and it would therefore not be classified as restricted income;
• Accounting changes are being proposed for charities that receive grants and for those that make grants; and
• Proposals to alter the recognition and measurement of gifts of goods and services.

Some of these will acutely affect the sector, but more technically-able writers will, no doubt, detail these and other worries.

Get involved

As we work in charities, we all know how important it is to make sure that voices are heard. The ASB has proved that it will listen to the voices of those who engage in the process. So the involvement of finance professionals can make a difference.

However, we cannot rely solely on sector groups to make a response to the ASB on our behalf. Although the CFG responds effectively to consultations, the ASB is consistent in its message that an umbrella body’s response will only be counted as one response to a consultation.

So this is the point that we, as finance leaders, must shape this proposed new standard – and hence any new Sorp – by getting involved in the consultation process.

Once the new standard is approved, we could try to change it by forming a picket line or by attempting to occupy the ASB’s offices. But I think I will start by sitting at my desk, with a cup of tea, writing a letter to the ASB. How about you?

Rui Domingues is finance director at Friends of the Elderly