SORPs

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February 2008

Review of Public BenefitSORPs

Report to the Committee onAccounting for Public-BenefitEntities of the Accounting

St d d B d

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St d d B d

Independent review of Public Benefit SORPs, February 2008

Contents

Section Page

Executive summary ...................................................................................................................................... 3

01 About this review .............................................................................................................................. 4

02 Background to the SORPs ............................................................................................................... 6

03 Key differences ................................................................................................................................. 8

04 Comment on key differences........................................................................................................... 11

05 Areas of specific guidance.............................................................................................................. 17

Appendix - Summary of accounting treatments ......................................................................................... 20

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This report presents the results of a review of the four public benefit SORPs which the Committee on

Accounting for Public-benefit Entities of the ASB has responsibility for.

The review looked at the SORPs in place for the further and higher education, housing, local authoritiesand charities sectors. It compares the accounting treatments and disclosure requirements of each of theSORPs across 58 predefined areas, as well as considering whether any of the SORPs is in conflict withUK GAAP.

The review found that there is considerable variety across the four SORPs. The four public benefitSORPs vary in terms of content, structure and format, and each has adopted a different approach toreflect the nature of transactions in their relevant sector. The nature of transactions, and the structuraland legislative backgrounds, dictate the content and tone of each of the four SORPs.

The key conclusions of this review are that:

there are no departures from UK GAAP in any of the four SORPs;

for the majority of areas reviewed, the accounting and disclosure requirements were broadly

similar for each SORP This was the case for 37 (out of 58) areas;

Executive summary

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The Committee on Accounting for Public-benefit Entities (CAPE) has responsibility for four SORPs.

CAPE has asked for an independent review that compares and contrasts the accounting requirementsset out in the four SORPs and which highlights any inconsistencies between them.

This report provides the results of that independent review and is intended for discussion at the meetingof CAPE on 31 October 2007.

Which SORPs are reviewed

This review has considered the four SORPs which CAPE has responsibility for:

1. Accounting for further and higher education (2007)

2. Accounting and reporting by charities (revised 2005)

3. CIPFA SORP - Code of practice on local authority accounting in the United Kingdom (2007 update)

4. Accounting by Registered Social Landlords (updated 2005).

Scope of the review

01 About this review

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Structure of this report

This report uses the following structure

Section 01 About this review (this section)

Section 02 Background to the SORPs

Section 03 Key differences

Section 04 Comment on key differences

Section 05 Areas of specific guidance

Appendix Summary of accounting treatments used by each SORP

Who undertook the work

The fieldwork and drafting of the report were undertaken by Matthew Hodge. Matthew is a seniormanager in PricewaterhouseCoopers Government and Public Sector Technical Team.

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There is considerable variety in accounting treatment and presentational requirements across each of the

four public benefit SORPs.

Each SORP has adopted a different approach to reflect the nature of transactions in their relevant sector:

the SORP Accounting and Reporting by Charities has a particular emphasis on fund accounting,

to reflect the restrictions on charitable funds managed by charities;

the SORP Accounting by Registered Social Landlords focuses on accounting for the housingstock managed by the registered social landlord, with an emphasis on fixed asset accounting andaccounting for the Social Housing Grant;

the SORP on Local Authority Accounting reflects the requirements to account for different

services separately, with ring-fencing around the accounting for some services (such as theHousing Revenue Account); and

the SORP - Accounting for Further and Higher Education reflects this sectors mixed-economymission, with private sector characteristics sitting within a funding regime which includes private,

public and charitable sources of funding The trend towards private sector funding has been

02 Background to the SORPs

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taking consideration of these legal requirements. They are urged to take all available steps to minimiseor avoid any potential conflict between the requirements of the SORP and legal considerations.

In general, the four SORPs focus on the types of activity undertaken by each entity, rather than its legalstatus, although these two factors will often overlap.

Sponsoring bodies for each SORP

The type of sponsoring body for each SORP varies across the four sectors, but in each case has to takeaccount of the ASB Policy and Code of Practice for SORP making bodies. This requires that the SORPmaking process should involve sector representatives, independent observers, users and other relevantgroups, and that the ASB should approve proposed working arrangements.

The Statement of Recommended Practice: Accounting and Reporting by Charities is produced by theCharity Commission and the Office of the Scottish Charities Regulator (OSCR). The Commission andOSCR, as the joint SORP-making body, are responsible for drafting and publishing SORP, with theCharities SORP Committee being responsible for the development of recommended practice.

The SORP on Local Authority Accounting is produced by the CIPFA/LASAAC Local Authority SORPBoard, a standing committee of CIPFA and LASAAC (the Local Authority (Scotland) Accounts AdvisoryCommittee).

The SORP on Accounting by Registered Social Landlords is produced by the National HousingFederation (NHF), Community Housing Cymru (CHC) and the Scottish Federation of HousingAssociations (SFHA). These organisations, as the joint SORP making body for the sector, are responsiblefor publishing the SORP, with the RSL SORP Working Party responsible for developing recommendedpractice.

The SORP on Accounting for Further and Higher Education is produced by Universities UK which isresponsible for publishing the SORP, with the HEFE SORP Board responsible for developing

recommended practice The Accounting Standards Group of the British Universities Finance Directors

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This section uses a tabular format to illustrate in summary how the four SORPs compare to each other

and to UK GAAP.

Commentary on the areas of difference is provided in Section 04 of this report.

A traffic light approach is used. Those areas where the SORPs are broadly similar in their guidance andare UK GAAP compliant are shown as green. Areas where they are different are shown as orange.

A blank cell indicates that no guidance is provided on that topic by the particular SORP.

Key

1 Different to other public benefit entity SORPs

2 Compliant with UK GAAP and similar guidance to other public benefitentity SORPs

03 Key differences

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Further andHigherEducation

Charities LocalAuthorities

RegisteredSocialLandlords

Donated tangible fixed assets 1 1 2 1

Shared ownership properties 1

Assets held for resale 2 2 2

Heritage assets 2 2

Capital grants and financing 1 1 1 1

Intangible assets

Recognition and carrying value ofintangible assets

2 2 2 2

Goodwill 2 2

Research and development 2

Assets and liabilities

Inventory and stock 2 2

Debtors, and provisions for bad anddoubtful debts

2 1

Financial instruments 2 1 1

Borrowing costs 2 2 2

Investments 1 1 2 2

Provisions and accruals 2 2 2 2

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Staff costs and emoluments 2 2

Overheads 1 1

Reserves

Revaluation reserve 2 2 1 2

Designated reserve 1 2 2 2

Restricted reserve 2 2 2 2

Consolidation

Subsidiaries and group accounts 2 2 2 2

Quasi-subsidiaries and specialpurpose entities

2 2 1 2

Associates 2 2 2

Joint Venture Entities 2 2 2

Charitable trusts 2 2 2

Taxes

Deferred tax 2 2 2 2

Current tax 2 2 2

Other areas

Segment l re orting 2 1 1 2

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This section provides commentary on those areas highlighted in Section 03 as showing differences

between the SORPs.

Approximately 65% of the 58 different areas reviewed showed consistency across the four SORPs interms of accounting and disclosure guidance. The remaining areas, where there were differences, arediscussed below.

Capital grants and financing

Guidance on accounting for capital grants is provided in each of the four SORPs.

Both the SORP on Local Authority Accounting and SORP Accounting for Further and Higher Educationsrequire capital grants to be deferred over the life of the related asset.

The SORP Accounting for Further and Higher Education requires that capital grants be credited todeferred capital grants in the balance sheet and an annual transfer made to the income and expenditureaccount over the useful economic life of the asset at the same rate as the depreciation charge on theasset for which the grant was awarded. Such grants are considered to effectively subsidise futureactivities and just as the revenue (if any) from those activities is recognised in the accounting periods

hi h th i id d th t i l d t i th ti t d f l lif f

04 Comment on key differences

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the SORP Accounting and Reporting by Charities shows the credit is treated as an incoming

resource in the SOFA;

the SORP Accounting by Registered Social Landlords shows the credit as a government grant inthe balance sheet, unless it is donated from the private sector in which case it will be shown as acredit in the Income and Expenditure Account; and

for the SORP on Local Authority Accounting does not state where the credit should be posted.

Capitalisation of expenditure

The SORP Accounting by Registered Social Landlords allows capitalisation of expenditure where itresults in a net increase in the rental income. This may arise through an increase in rental income, a

reduction in future maintenance costs or a significant extension to the life of the property.

The requirements in relation to capitalisation of expenditure for the other three SORPs are summarisedbelow:

Further and higher education Charities Local authorities

Tangible fixed assets should be

initially measured at cost, includingirrecoverable VAT.

Costs incurred in relation to atangible fixed asset after its initialpurchase or production should becapitalised to the extent that theyincrease the expected future benefitsto the institution from the existingtangible fixed asset beyond itspreviously assessed standard of

f

Tangible fixed assets should initially

be included on the balance sheetshowing the cost of acquisition andany directly attributable costs.

Subsequent expenditure whichenhances (rather than maintains) theperformance of tangible fixed assetsshould be capitalised.

Expenditure which adds to and does

not merely maintains the value of anexisting asset should be capitalised.

Improvement works and structuralrepairs should be capitalised,whereas expenditure whichmaintains a previously assessedstandard of performance should beexpensed.

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Debtors and provisions for bad and doubtful debts

The SORP on Local Authority Accounting provides guidance on the calculation of bad debt provisionsbased on the requirements of FRS 25 and FRS 26. This guidance is much more advanced than that

provided by the SORP Accounting and Reporting by Charities (the only other SORP which givesguidance on this area), although does not go beyond the guidance provided by UK GAAP.

Investments

Both the SORP Accounting and Reporting by Charities and the SORP Accounting for Further and HigherEducation deal with total return accounting for investment income (new for education bodies in 2007).

Total return is an investment approach which allows trustees to manage investments without the need to

take account of whether the return is in the nature of income or capital gain. Where charities holdingendowments have the necessary powers then trustees can allocate the investment return betweenincome and capital and so balance the needs of current beneficiaries by spending the return as incomewith the needs of future beneficiaries by retaining the return as capital or endowment.

The SORP Accounting and Reporting by Charities does not specifically permit total return accountingbut does provide accounting recommendations where such an approach is adopted.

Investments are classified as available for sale financial assets in the SORP on Local Authority

Accounting: Gains or losses on available for sale financial assets are recognised through the STRGL andtaken to the Available for Sale Reserve. Impairment losses are charged to the Income and ExpenditureAccount.

Turnover

The recording of turnover and income is an area of some difference across all four SORPs.

For the SORP Accounting for Further and Higher Education a distinction is drawn between income which

b li d t th di ti f th tit d th t hi h i f ifi

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Overheads

The SORP Accounting and Reporting by Charities and SORP on Local Authority Accounting both provideguidance on accounting for overheads. This is because both of these SORPs measure expenditure by

activity rather than by type of expenditure. Overheads, therefore, need to be apportioned across theclasses of activity.

Designated reserves

All of the SORPs allow the creation of designated reserves with the exception of the SORP Accountingfor Further and Higher Education which does not permit the practice:

The SORP Accounting by Registered Social Landlords requires the disclosure of designated

reserves on the face of the balance sheet;

the SORP on Local Authority Accounting does not appear to have this requirement (i.e. there isno explicit requirement for designated reserves to be disclosed on the face of the balance sheet);and

the SORP Accounting and Reporting by Charities requires that designated funds form part of the

unrestricted funds balance.

Revaluation reserve

All four SORPs allow for a revaluation reserve.

A revaluation reserve will be required under the SORP on Local Authority Accounting from 1 April 2007.However, due to limitations around the robustness of available information, the revaluation reserve is notapplicable retrospectively. Opening balance sheet information is not required.

Consolidation

Th SORP L l A th it A ti d t id it i t t t f titi

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Primary statements

A key presentational difference under the SORP Accounting and Reporting by Charities is the use of aStatement of Financial Activities (SOFA). This combines an income statement with the features of a

Statement of Total Recognised Gains and Losses and movement in funds. FRS 3 Reporting FinancialPerformance requires two primary statements of financial performance, the profit and loss account andthe statement of total recognised gains and losses. FRS 3 requires statements of performance that,taken together, depict the major elements of an entitys performance, including all gains and losses of theperiod whether accounted for in the profit and loss account or in reserves. The aim of this approach is togive users sufficient information to enable them to make judgements about an entity's past performanceand to assist them in forming a basis for predicting future trends in performance. The SORP Accountingand Reporting by Charities complies with the spirit of this accounting standard, although the presentationis an approach which is not anticipated in FRS 3. The charity approach contrasts with the other three

SORPs which all use some form of Income and Expenditure Account and a separate Statement of TotalRecognised Gains and Losses.

Operating results and measurement of performance

The SORP Accounting and Reporting by Charities also has an emphasis on fund accounting, where theSOFA reflects the movements between the opening and closing balances on all the funds of the charity.

Expenditure is measured by activity under the SORP Accounting and Reporting by Charities, just as it is

under the SORP on Local Authority Accounting. This contrasts with the SORPs for housing andeducation, where expenditure is measured by type.

Accounting for statutory requirements in local authorities

To reflect local authority statutory requirements certain items are reversed out of the surplus/deficit for theyear and are shown in a Statement of Movement on the General Fund. These reversals of GAAPaccounting transactions impact on items such as depreciation and FRS 17 costs. Other non-GAAP itemsare then transferred in, such as capital expenditure charged on the general fund balance.

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Classes of tangible fixed asset

Unlike the other three SORPs, the SORP on Local Authority Accounting requires that classes of tangiblefixed assets be disclosed on the face of the balance sheet. The other three SORPs define classes of

fixed asset to be disclosed in the notes to the accounts.

Classes of tangible fixed asset required to be disclosed by each SORP:

Further and HigherEducation

Charities Local authorities Housing

Land and buildings

Plant and machinery

Fixtures, fittings, toolsand equipment

Payments on accountand assets in the courseof construction

Freehold interest in landand buildings

Leasehold and otherinterests in land andbuildings

Plant and machineryincluding motor vehicles

Fixtures, fittings andequipment

Payments on accountand assets in the courseof construction

Council dwellings

Other land and buildings

Vehicles, plant, furnitureand equipment

Infrastructure assets

Community assets

Housing properties heldfor letting

Shared ownershipproperties

Other properties

Th diff li t i t ibl t h th SORP L l A th it A ti

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This section uses a tabular format to illustrate the guidance provided on topics by the four SORPs.Where the SORP provides accounting and/or disclosure guidance which is specifically interpreted for thesector, then this is shown as green. Where the SORP provides guidance on a particular topic, but thisgoes little further than repeating the requirements of UK GAAP, then this is demarked as red in the table.

A blank cell indicates that no guidance is provided on that topic by the particular SORP.

Areas where SORP guidance does not add to UK GAAP

Of the areas reviewed where each SORP provided accounting and disclosure guidance, in approximately45% of the total the interpretation provided did not go significantly beyond UK GAAP.

These areas could be removed from their respective SORPs. This would allow each SORP to focus onthose areas where sector-specific guidance is required, rather than on general accounting guidance.

K

05 Areas of specific guidance

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Basis of valuation 2 2 2 2

Classes of fixed assets 2 2 2 2

Depreciation 1 1 2 1

Impairment and revaluation losses 1 2 1 1

Capitalisation of expenditure 1 1 1 2

Donated tangible fixed assets 2 2 2 2

Shared ownership properties 2

Assets held for resale 2 2 2

Heritage assets 2 2

Capital grants and financing 2 2 2 2

Intangible assets

Recognition and carrying value ofintangible assets

1 1 1 1

Goodwill 1 2

Research and development 2

Assets and liabilities

Inventory and stock 1 1

D bt d i i f b d d 1 1

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Long term contracts 2 1 1

Agency arrangements 2 1 2 2

Income from investments 2 2 2 1

Expenditure

Grants payable 2 2 2

Staff costs and emoluments 2 2

Overheads 2 2

Reserves

Revaluation reserve 2 2 2 2

Designated reserve 2 2 2 2

Restricted reserve 2 2 2 2

Consolidation

Subsidiaries and group accounts 2 2 2 2

Quasi-subsidiaries and specialpurpose entities

2 2 2 2

Associates 1 1 2

Joint Venture Entities 2 2 2

Ch i bl 2 2 2

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PricewaterhouseCoopers LLP20

Further and Higher Education Charities Local authorities Registered Social Landlords

1a) Presentation of financial statements: Primary statements

Requirement for:

Income and expenditure account

Balance sheet

STRGL

Statement of historical costsurpluses and deficits

Cash flow statement

Explanatory notes (includingaccounting policies).

Appendices provide predefined formats.

Requirement for:

a Statement of Financial Activities(SOFA) presented in columnar

format for each class of funds a balance sheet

a cash flow statement

an income and expenditurerequirement if the charity is also acompany

Notes to the accounts.

The format and line by line disclosure isset out in the text of the SORP.

The STRGL is incorporated as part of theSOFA.

An authoritys accounting statementscomprise:

the core financial statements

grouped together the supplementary single entity

financial statements that are relevantto its function

the group accounts.

Core single entity financial statementsare applicable to all local authorities:

Income and Expenditure Account

Statement of Movement on theGeneral Fund Balance (an additionalstatement required for statutory, but

not UK GAAP, purposes)

Statement of Total RecognisedGains and Losses

Balance Sheet

Cash Flow Statement.

The information to be included in each

Requirement for:

Income and expenditure account

Balance sheet

STRGL

Note of historical cost surpluses anddeficits

Cash flow statement (unlessexempted)

notes to the accounts.

Example layouts are provided in theappendices.

Appendix - Summary of accounting treatments

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statement is defined in the SORP.

1b) Presentation of financial statements: Operating results and measurement of performance

Operating result for the year is struck

after accounting for all income andexpenditure, with the exception of thesuper-exceptional items defined underFRS 3.

This SORP has an emphasis on fund

accounting. The accounts differentiatebetween different classes of funds, inparticular restricted and unrestrictedfunds.

The net unspent funds are disclosed inthe SOFA and these are reconciled to thefund balance brought forward from thepervious period.

Expenditure is measured by activity,rather than by class of expenditure.

The surplus or deficit for the year is

shown after accounting for grossexpenditure and gross income.

To reflect statutory requirements certainitems (such as depreciation and FRS 17costs) are then reversed out, and otheritems are added in (e.g. capitalexpenditure charged to the general fundbalance). These adjustments are shownin Statement of Movement on theGeneral Fund Balance before arriving ata General Fund balance to be carriedforward.

The format of the income and

expenditure account is close to that usedfor a Profit and Loss Account under theCompanies Act.

The operating result is shown after takingoperating costs from turnover.

1c) Presentation of financial statements: Exceptional items

Follow the requirements of FRS 3. Exceptional items should be shown as aseparate row within the activity to whichthey relate.

Material past service costs andcurtailments they should be disclosed asexceptional items.

Exceptional costs which arise in thecontext of generating voluntary incomeshould not be shown as a separatecategory in the SOFA.

Exceptional items should be shown ingross expenditure in the Income andExpenditure Account, ie they should beincluded in the costs of the service towhich they relate.

Any material exceptional items (egfundamental reorganisations) should beshown on the face of the Income andExpenditure Account.

The Income and Expenditure Accountalso includes a line for ExtraordinaryItems.

Requirement to follow the provisions ofFRS 3.

1d) Presentation of financial statements: Accounting policies and estimation techniques

Follow the requirements of FRS 18.

Must follow UK GAAP and specificallynot IFRS.

Estimation techniques must comply withUK GAAP, the SORP and provide a true

Requirement to follow FRS 18,supplemented with specific requirements:

policy for each material incomingresource

Requirement to follow FRS 18.

A list of example accounting policies isprovided.

Requirement also to disclose:

Accounting policies should be consistentwith accounting standards, UITFabstracts etc.

A list of example accounting policy areasis provided in the SORP

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and fair view. policy for capitalising fixed assets

policy for inclusion of investments inthe accounts.

There is also a requirement to describe

the different types of fund held by thecharity, and what the policy is fordesignated funds.

Guidance is given on resourcesexpended policy notes which includes:

recognition of liabilities andconstructive obligations

how expenditure is categorised inthe SOFA, and how costs areapportioned between funds.

departures from the SORP

accounting convention adopted

material accounting policies

significant estimation techniques

changes in accounting policies

material changes in estimationtechniques.

Guidance is given for examples of wherea measurement basis for particularassets and liabilities will translate into anaccounting policy.

1e) Presentation of financial statements: Events after the balance sheet date

Requirement to follow FRS 21 withdistinction between adjusting and non-adjusting events.

Gift aid payments (analogous todividends) from subsidiary entities can beaccrued if a constructive obligation canbe demonstrated.


Where a liability for gift aid paymentexists the liability should be adjustedwhere post year-end calculations providegreater accuracy.

The same principle applies todesignations made by a charity beforethe year-end, where more accurateinformation after the balance sheet dateallows the charity to adjust.

Requirement to follow FRS 21 with somegeneral guidance provided on adjustingand non-adjusting events and the date atwhich the Statement of Accounts isauthorised for issue.


Gift aid payments are referred to asadjusting events if there was a presentlegal or constructive obligation at thebalance sheet date.

2a) Property, plant and equipment: Carrying value of tangible fixed assets

Tangible fixed assets should be initiallymeasured at cost, including irrecoverableVAT. Thereafter they may be includedon the balance sheet at cost or valuation.

The FRS 15 transitional option to holdfixed assets at frozen book value(historical cost) are referred to in the

Tangible fixed assets should held at thecost of acquisition including directlyattributable costs for bringing the assetsinto working condition for their intendeduse. This includes the cost of interest onloans to finance the cost of the fixedasset.

There is the option to hold fixed assets at

All expenditure on the acquisition,creation or enhancement of tangible fixedassets should be capitalised on anaccruals basis.

Fixed assets should initially be measuredat cost.

Housing properties should be included inthe balance sheet at either:

historical cost less social housinggrant and depreciation; or

valuation (current value).

Directly attributable development costs

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SORP. valuation or cost. should be capitalised.

2b) Property, plant and equipment: Basis of valuation

Revalued fixed assets should be held atcurrent value:

Non-specialised properties shoulduse Existing Use Value

Specialised properties should useDepreciated Replacement Cost

Surplus properties should useMarket Value

Other fixed assets (non-properties)should use Market Value.

The Trustees may use any reasonableapproach to valuation at least every fiveyears.

Independent formal valuations are notnecessary, and may be undertaken byany suitably qualified person who may betrustee or employee.

For assets other than properties, if thereis an active second hand market then thiscan be used as the basis for valuation(but asset values must be updatedannually).

Infrastructure and community assetsshould be included in the balance sheetat historical cost.

Operational land and properties shouldbe included in the balance sheet at thelower of net current replacement cost ornet realisable value in existing use.

Where housing stock is included atvaluation, this is taken to be the lower of:

replacement cost (the cost of anidentical property today); or

recoverable amount (the higher ofnet realisable value (OMV) andvalue in use).

2c) Property, plant and equipment: Classes of fixed assets

Follows the four classes in theCompanies Act:

land and buildings

plant and machinery

fixtures, fittings tools and equipment

payments on account and assets inthe course of construction.

Plus the option for a fifth class: HeritageAssets.

There is the option to further sub-dividethese classes to reflect operations.

Five classes of asset are determined:

freehold interest in land andbuildings

leasehold and other interests in landand buildings

plant and machinery including motorvehicles

fixtures, fittings and equipment

payments on account and assets in

the course of construction.

These headings may further be split toprovide narrower definitions (withinreason).

Tangible fixed assets should bedisclosed on the face of the balancesheet as follows:

Operational assets

council dwellings

other land and buildings

vehicles, plant, furniture andequipment

infrastructure assets

community assets

Non-operational assets

investment properties

assets under construction

surplus assets held for disposal.

Housing properties should be analysedby class of property in the notes to theaccounts:

properties held for letting

shared ownership properties

other properties.

Completed schemes and propertiesunder construction should if material beseparately disclosed for the categoriesabove.

Shared ownership properties, includingthose under construction, should beproportionally split between fixed assetsand current assets.

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2d) Property, plant and equipment: Depreciation

Depreciation should be charged on allfixed assets with the exception of land (orif the charge or accumulated depreciation

is not material, but then regularimpairment reviews are required).

If material, a depreciable assetsanticipated useful economic life must bereviewed annually.

There is an option for componentaccounting where relevant.

There should be an annual depreciationcharge in the SOFA and shown in thebalance sheet as accumulated

depreciation.

Useful economic lives and residualvalues of fixed assets should bereviewed annually.

Where components have substantiallydifferent useful lives then eachcomponent should be depreciated overits individual useful life.

There are exceptions to chargingdepreciation for land, where thedepreciation charge is not material, andfor heritage assets.

Depreciation should be charged on allfixed assets with a finite useful life. Theonly grounds for not charging

depreciation are that it is not material.

Freehold land should not normally bedepreciated unless it is subject todepletions (e.g. through the extraction ofminerals).

Renewals accounting may be used as away of estimating depreciation forinfrastructure assets in certaincircumstances.

Depreciation is charged as part of grossexpenditure in the Income andExpenditure Account.

Depreciation on housing propertiesshould be charged to the Income andExpenditure Account.

Freehold land should not be depreciated.

The only grounds for not chargingdepreciation are that it is not material (onan aggregate basis). In such cases anannual impairment review should becarried out.

The useful economic lives of propertiesshould be reviewed at the end of eachreporting period.

Historic cost depreciation adjustmentsshould be made to the Income andExpenditure Account on properties held

at valuation.

2e) Property, plant and equipment: Impairment and revaluation losses

Fixed assets are tested for impairmentwhen:

there is a policy of revaluation(optional under this SORP)

assets are surplus to requirements

no depreciation is charged on anasset.

Revaluation losses caused by a clear

consumption of economic benefits shouldbe recognised in the income andexpenditure account. Other decreases invaluation should first be set against anyprevious revaluation surplus for thatasset. Thereafter, they should bereported in the income and expenditureaccount unless it can be demonstratedthat the recoverable amount of the asset

Impaired assets must be written down totheir recoverable amount.

Value in use for charities is determinedthrough service potential/delivery or thereplacement cost of the asset.

Impairment reviews should be carried outwhere there is an indication that therecoverable amount of a functional fixedasset is below its net book value. This

review should be on an asset by assetbasis.

Impairment losses should be treated asadditional depreciation and charged tothe SOFA (the section under charitablecompanies allows the charge to be takento the revaluation reserve in certaincircumstances).

Examples are provided of situationswhere impairment reviews are required.

Where an impairment results from clearconsumption of economic benefit itshould be accounted for through theIncome and Expenditure Account. Otherimpairments should be recognisedthrough the STRGL.

Detailed impairment reviews only need tobe carried out where there is anindication that impairment has occurred(examples are provided of theseindications, such as voids).

Service potential, as well as expectedfuture cash flows (from rents), arereferred to as factors to consider inrelation to impairments.

Impairments that are a result of a majorreduction in service potential should berecognised in the income andexpenditure account.

Impairments which are a result ofchanges in price should be recognised inthe STRGL.

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is greater than its revalued amount, inwhich case the loss should berecognised in the statement of totalrecognised gains and losses to the extentthat the recoverable amount of the asset

is greater than its revalued amount.Assets held at cost are also subject toimpairment reviews.

2f) Property, plant and equipment: Capitalisation of expenditure

Tangible fixed assets should be initiallymeasured at cost, including irrecoverableVAT.

Costs incurred in relation to a tangiblefixed asset after its initial purchase orproduction should be capitalised to theextent that they increase the expectedfuture benefits to the institution from theexisting tangible fixed asset beyond itspreviously assessed standard ofperformance.

Expenditure to ensure that a tangiblefixed asset maintains its previouslyrecognised standard of performanceshould be recognised in the income andexpenditure account in the period it isincurred.

Tangible fixed assets should initially beincluded on the balance sheet showingthe cost of acquisition and any directlyattributable costs.

SORP paragraph 253 (c) addressessubsequent capitalisation of expenditure.

Expenditure which adds to and does notmerely maintains the value of an existingasset should be capitalised.

Improvement works and structural repairsshould be capitalised, whereasexpenditure which maintains a previouslyassessed standard of performanceshould be expensed.

Directly attributable development costsshould be capitalised up to the pointwhere the property is substantiallycomplete and ready for use.

Interest on capital borrowed to finance adevelopment may be capitalised(guidance is provided) but should bedisclosed.

Works which enhance the economicbenefits of an asset in excess of thestandard of performance anticipatedwhen the asset was acquired should becapitalised as improvements. Thisincludes expenditure where it results in anet increase in the rental income. Thismay arise through an increase in rentalincome, a reduction in futuremaintenance costs or a significantextension to the life of the property.

2g) Property, plant and equipment: Donated tangible fixed assets

Tangible fixed assets, with the exceptionof land, donated for use by the institutionshould be valued, and the value creditedto deferred capital grants and the debittaken to the relevant fixed asset categorywhen receivable. Land donated for useby the institution should also be valued,but the associated credit should be taken

Donated tangible fixed assets should beincluded in the balance sheet at theircurrent value and also included in theSOFA as an incoming resource.

Fixed assets acquired for other than cashconsideration should be shown in thebalance sheet at fair value.

Donated (or sub market priced) landshould be shown in the balance sheet atcurrent value.

Where the land has been donated byeither central government or localgovernment, the difference betweencurrent value and transfer price should

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to the income and expenditure accountas a donation.

Where an institution enjoys the use of anasset which it does not own and forwhich no annual or nominal rental is paid

the financial statements must disclosethis and, if practicable, a value should beattributed to this benefit and becapitalised, with a corresponding credit tothe revaluation reserve deferred capitalgrants.

be shown as a government grant.

2h) Property, plant and equipment: Shared ownership properties

No guidanc e is provided. No guidance is provided. No guidance is provided. Shared owners hip properties, includingthose under construction, should beproportionally split between fixed assetsand current assets. This split should bedetermined by the percentage of the

property to be sold under a first tranchesale, which should be shown on initialrecognition as a current asset, with theremainder classified as a fixed asset.Ordinarily the costs and therefore thevalue at initial recognition of the currentand fixed assets should be apportionedto the first tranche sales (current assets)and subsequent tranches (fixed assets)in proportion to the share of equity sold.The exception to this treatment would bein cases where this would result in asurplus on the disposal of the currentasset that would exceed the anticipatedoverall surplus.

2i) Property, plant and equipment: Assets held for resale

Where an institution is committed to thedisposal of a tangible fixed asset, suchassets should be carried at cost orvaluation, or written down to their net

Not mentioned as an issue for this sector. Surplus assets should be separatelydisclosed on the face of the balancesheet.

Properties developed for outright sale oron behalf of third parties should betreated as current assets. They shouldbe held at the lower of cost or net

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realisable value, whichever is lower.Where all the following criteria are met,such assets should be transferred fromfixed assets to current assets:

the asset is not being replaced;

there is a commitment to sell theasset (e.g. being advertised forsale);

the asset is no longer in use.

Disposal gains/losses must be reversedout of the General Fund to comply withstatutory requirements.

Assets surplus to requirements should beincluded in the balance sheet at the lower

of net current replacement cost (historiccost) or net realisable value.

realisable value.

The disposal proceeds of housingproperties held as current assets shouldbe included in turnover. Proceeds fromthe disposals of fixed assets should not

be included in turnover.

2j) Property, plant and equipment: Heritage assets

Newly purchased heritage assets shouldbe initially measured and recognised attheir cost.

Heritage assets acquired in pastaccounting periods which have not been

capitalised may only be excluded fromthe balance sheet if: reliable costinformation is not available andconventional valuation approaches lacksufficient reliability; or significant costsare involved in the reconstruction oranalysis of past accounting records or invaluations which are onerous comparedto the additional benefit derived by usersof the accounts.

Information on heritage assets (whetheror not they have been capitalised) shouldbe given in the notes to the accounts.

Historic assets used by the institutionitself and corporate art are not heritageassets.

Newly purchased heritage assets shouldbe initially measured and recognised attheir cost.

Heritage assets acquired in pastaccounting periods which have not been

capitalised may only be excluded fromthe balance sheet if: reliable costinformation is not available andconventional valuation approaches lacksufficient reliability; or significant costsare involved in the reconstruction oranalysis of past accounting records or invaluations which are onerous comparedto the additional benefit derived by usersof the accounts.


Heritage assets should be included in aseparate row in the balance sheet andshould be further analysed intoappropriate classes in the notes to theaccounts.

Similar types of assets which are not heldfor preservation or conservationpurposes should not be treated as

Not referred to in the SORP. However,the class of "community assets",identified elsewhere at 2c) encompassesheritage assets.

Not referred to in the SORP.

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heritage assets.

Inalienable assets should be capitalised,unless covered by the heritage assetexemptions.


2k) Property, plant and equipment: Capital grants and financing

Where an institution receives a grant tofinance, or partly finance, the purchase,construction or development of an asset,and the asset is capitalised, the grantshould be credited to deferred capitalgrants and an annual transfer made tothe income and expenditure account overthe useful economic life of the asset atthe same rate as the depreciation charge

on the asset for which the grant wasawarded.

Deferred capital grants are shown withreserves as funds in the balance sheet.

Capital grants should not be netted offfixed assets.

Grants for fixed assets should berecognised in the SOFA as incomingresources. This will normally be whenthey are receivable. If there areconditions attached to the grant then itmust be deferred until the conditions

have been met.

Where the acquisition of a fixed asset isfunded by a government grant, the grantshould be credited to a GovernmentGrants Deferred Account and thenwritten off to match the life of the asset towhich it relates.

Government Grants Deferred are shownin the top half of the balance sheet.

Social housing grants intended for capitalshould be shown on the balance sheet asa deduction from the cost of housingproperties.

Where social housing grants are to berecycled they should be credited to aRecycled Capital Grant Fund undercreditors.

Housing loans should be disclosed in thenotes to the accounts over the period inwhich they are repayable.

Instruments should be shown in thebalance sheet at the amount of the netproceeds. Details of all discountedbonds should be disclosed.

Homebuy schemes should be shown asfixed asset investments deducted fromthe housing properties which they relateto.

3a) Intangible assets: Recognition and carrying value of intangible assets

An intangible asset purchased separatelyfrom a business should be capitalised atits cost.

An intangible asset acquired as part ofthe acquisition of an institution or otherentity should be capitalised separatelyfrom goodwill if its value can be

Intangible fixed assets should beincluded in the balance sheet inaccordance with FRS 10.

Purchased intangible assets should becapitalised at cost. Internally developedintangible assets can only be capitalisedwhere there is a readily ascertainablemarket value.

Guidance is also provided onamortisation and accounting for disposals

See 3b) below.

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measured reliably on initial recognition. Itshould initially be recorded at its fairvalue.

An internally developed intangible assetmay be capitalised only if it has a readily

ascertainable market value.

of tangible fixed assets.

3b) Intangible assets: Goodwill

Positive purchased goodwill should becapitalised and classified as an asset onthe balance sheet. FRS 10 should befollowed.

No comment other than 3a) above. Goodwill is not considered to be relevantto local authorities.

Positive acquired goodwill should beshown on the balance sheet as an asset.Negative goodwill should be shown in theCapital and Reserves section of thebalance sheet.

3c) Intangible assets: Research and development

Requirement to follow SSAP 13 forcommercial research and development.Pure and applied research cannot becapitalised.

No comment other than 3a) above. Research and development is notconsidered to be relevant to localauthorities.

No comment.

4a) Assets and liabilities: Inventory and stock

Stocks should be recognised in thebalance sheet at cost or net realisablevalue whichever is lower.

No specific requirements. Stocks should be included in the BalanceSheet at the lower of cost and netrealisable value.

No specific requirements.

4b) Assets and liabilities: Debtors, and provisions for bad and doubtful debts

No specific requirements. Debtors should be analysed in the notes

to the accounts between short term andlong term split between:

trade debtors

amounts due from subsidiaries/associates

other debtors

Extensive general guidance is provided

on receivables in the context of thefinancial instrument standards (FRS 25,26, 29).

Guidance is also given on providing(impairing) these financial assets.Objective evidence is required of a pastevent before these assets can beimpaired. Expected losses as a result of


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prepayments and accrued income.

Material long term debtors must beseparately disclosed on the balancesheet.

Recognition of grants (non reciprocaltransfers) : Non-contractual receipts andrecognition points are a particular issuein the voluntary sector as is thedifferentiation of contracts, performancerelated grants and grants as voluntarypayments.

future events, no matter how likely,should not be recognised.

4c) Assets and liabilities: Financial instruments

Requirement to follow FRS 25, FRS 26and FRS 29 (where appropriate).

No specific requirements are defined inthe SORP but the presentationalrequirements of FRS 25 are set out insummary.

Requirement to follow FRS 25 and FRS26 (where appropriate).

The annual report should include anexplanation of any financial derivatives.

The notes to the accounts shouldindicate what derivative products areused, and what the risk is. They shouldalso disclose what the charitys positionwould be with and without thederivatives, and what the costs andbenefits are.

The 2007 SORP requirements are basedon FRS 25, 26 and 29. The SORPincludes an extensive new chapterproviding guidance on accounting forfinancial instruments in the context oflocal government accounts.

There is a requirement to disclose furtherinformation about financial instruments inthe notes to the accounts, both in relationto the balance sheet and the income andexpenditure account, and for accountingpolicies.

Statutory adjustments to the General

Fund are reflected in a FinancialInstruments Adjustments Account shownin the bottom half of the balance sheet.

FRS 25 and FRS 26 will be relevant toRSLs in certain circumstances. Nodetailed guidance is provided.

4d) Assets and liabilities: Borrowing costs

No specific requirements. Loans and overdrafts should bedisclosed in the creditors note to the

Guidance is provided on accounting forloans in the context of FRS 26.

Housing loans should be disclosed in thenotes to the accounts over the period in

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accounts. which they are repayable.

Instruments should be shown in thebalance sheet at the amount of the netproceeds. Details of all discountedbonds should be disclosed.

Homebuy schemes should be shown asfixed asset investments deducted fromthe housing properties which they relateto.

4e) Assets and liabilities: Investments

Listed investments held as fixedassets or endowment assets shouldbe shown at market value.

Investments in subsidiaryundertakings should be shown atcost, subject to a review for

impairment.

Investments in associates should beshown in the consolidated balancesheet at attributable share of netassets.

Current asset investments, includinglisted investments, should be shownat the lower of cost and netrealisable value.

Changes in value

Increases in value arising on therevaluation of fixed asset investmentsshould be carried as a credit to therevaluation reserve via the statement oftotal recognised gains and losses; adiminution in value should be charged tothe income and expenditure account as adebit to the extent that it is not coveredby a previous revaluation surplus.

Increases/decreases in value arising on

Investment assets are defined asinvestments, investment properties andcash held for investment purposes.These should be shown as a separatefixed assets category.

If the intention is realise the asset without

reinvesting the sale proceeds then thisshould be a current asset investment.

Carrying value

Investment assets should be shown atmarket value. Changes in value shouldbe reported through the SOFA.

Shares in unlisted companies may bevalued by reference to net assets,earnings or dividend record.

Investment assets should not bedepreciated.

Other investments (besides shares andsecurities) must be valued every 5 years.

Disclosure

Separate disclosure is required for:

investments held for a return

programme related investments held

Available for sale financial assets shouldbe measured at fair value.

They should be regularly re-measured atfair value using a quoted market price orvaluation techniques, without deductionfor transaction costs that would be

incurred on sale or other disposal.Gains or losses on available for salefinancial assets should be recognisedthrough the STRGL and taken to theAvailable for Sale Reserve. Impairmentlosses should be charged to the Incomeand Expenditure Account.

Investments should be shown as currentassets if the intention is to realise theinvestments in the short term withoutreinvesting the proceeds.

Non-property Investments should beshown on the balance sheet at market

value.Upward revaluations of investmentsshould be taken through the STRGL.

Diminutions in value should go throughthe STRGL as long as there is a relatedbalance in the revaluation reserve.

Historic cost of investment assets shouldbe disclosed in the notes to the accounts.

The investment revaluation reserveshould be included within the RevaluationReserve on the face of the BalanceSheet.

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the revaluation or disposal of endowmentassets should be added to or subtractedfrom the funds concerned and beaccounted for through the balance sheetthrough by debiting or crediting theendowment asset and crediting ordebiting the endowment fund and shouldalso be reported in the statement of totalrecognised gains and losses.

Total return

There is an option to account forinvestments linked to permanentendowment funds on a total return basis.This allows for any increases in value tobe applied against the endowmentspurpose.

as part of the charitable objectives.

Disclosure should also be given of:

how the valuation has been arrivedat

impact on the market (where thesale of the securities wouldmaterially affect the value)

reconciliation of opening and closingbook values

total value of investment assets bycategory of investment

analysis of non-UK and UKinvestment assets

Total returnThe option to apply a total returnapproach on investments for permanentendowments is permitted, subject toCharity Commission approval.

4f) Assets and liabilities: Provisions and accruals

Applies the FRS 12 definition ofprovisions.

Provisions for restructuring should onlybe recognised when the institution isdemonstrably committed to thatrestructuring and when as a result of thiscommitment there is valid expectationthat there will be a transfer of economicbenefits.

There are no grounds for recognising aprovision for future repairs andmaintenance in respect of freeholdbuildings.

Liabilities should be shown at theirsettlement value, and reviewed at eachbalance sheet date. For grants where anexchange for consideration does notarise, there may still be a liability,particularly for multi-year grants.

Provisions may be discounted torecognise the timing of future payments.

The notes to the accounts shouldanalyse creditors across the followingheadings:

Loans and overdrafts

General guidance is given on accountingfor and recognising provisions, withspecific guidance on:

the costs of internal and externalrestructuring

future operating losses (not allowed).

The expense relating to a provision maybe presented net of any reimbursementfrom a third party.

Provisions are specifically not allowed forcyclical maintenance or major works toexisting stock.

Receipts in advance of agreements tocarry out improvement works on behalf ofthird parties should normally be shown increditors.

Recycled capital grant should be shownin creditors.

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Disclosures should be made of thepurpose of each class of provision unlessthis prejudices the position of the entity.

Early retirement costs should beaccounted for in line with FRS 12, not

FRS 17.

trade creditors

amounts due to subsides/ associates

other creditors

accruals and deferred income.

There should be separate disclosure forprovisions of less than and more thanone year.

Particulars of all material provisionsshould be disclosed, as should details ofall material charitable commitmentswhere they have not been accrued(intentions to spend).

Earmarked funds should not be accruedfor.

4g) Assets and liabilities: Investment property

Investment properties should be held atmarket value with charging depreciation.The following are not considered to beinvestment properties:

property which is owned andoccupied by an institution for its ownpurposes

property let to and occupied byanother group entity.

Other investments (besides shares andsecurities) must be valued every 5 years,i.e. investment property. If there is amaterial movement in the interveningperiod then the asset must be revalued.

Investment properties (other than thoseheld by pension funds) should beincluded in the balance sheet at the lowerof net current replacement cost or netrealisable value (usually market value).

Where the primary purpose remains theprovision of social housing then theyshould not be classified as investmentproperties.

4h) Assets and liabilities: Leases

SSAP 21 is to be followed.

Material finance leases should becapitalised.

Reference should also be made to FRS5, Application Note F.

Requirement to follow SSAP 21. Requirement to show the accountingpolicies for operating and finance leases.Rentals payable and receivable underoperating leases should be accounted foron a straight line basis over the term ofthe lease, even if the payments/receiptsare not on this basis.

Requirement to follow SSAP 21 withreference made to the need to properlyallocate rental income to the correctaccounting periods.

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4i) Assets and liabilities: Contingent liabilities and commitments

Contingent liabilities are defined byreference to the possibility criteria.

No specific references to commitments.

Contingent liabilities should not berecognised in the SOFA.

Material contingent liabilities should be

disclosed in the notes to the accounts,including details of its nature and anyuncertainty.

Details of all material commitmentsshould be disclosed in the notes to theaccounts, although this terminologywould appear to relate to provisionsrather than commitments (para 327-328).

Contingent liabilities should not beincluded in the balance sheet. Guidanceis provided on the type of information to

disclose with contingent liabilities in thenotes to the accounts.


4j) Assets and liabilities: Contingent assets

Contingent assets are defined byreference to the possibility criteria.

Contingent assets should not berecognised in the SOFA.

Material contingent assets should bedisclosed in the notes to the accounts,including details of its nature and anyuncertainty.

Contingent assets should not berecognised in the financial statements,but should be disclosed in the notes tothe accounts.


5a) Retirement benefits: Defined benefit schemes

FRS 17 requirements are applied in full.

Net pension assets/liabilities aredisclosed on the balance sheet, as is therelevant part of the Income and

Expenditure Reserve.

Amounts charged to the Income andExpenditure Account should beseparately disclosed in the notes to theaccounts.

Multi-employer defined benefit schemesare specifically identified with guidance

The net pension scheme assets/liabilitiesshould be disclosed on the face of thebalance sheet.

Multi-employer defined benefit schemes

are specifically identified with guidanceprovided on whether it is expected thatthey can be accounted for as definedbenefit schemes.

Defined benefit schemes should bevalued every three years by anindependent qualified actuary.

Where there is participation in more thanone scheme those schemes with netpension assets should be shownseparately on the balance sheet from

those with net liabilities.Scheme assets should be measured atfair value.

The current service cost should beincluded within the net cost of services.

The net of interest cost and expectedreturn on scheme assets should be

FRS 17 requirements are applied in full,and it is considered that generally thereare no special circumstances facingsocial landlords in implementing the

standard.Current service costs, past service costsand surpluses and deficits on settlementsand curtailments should be recognised inoperating costs.

Interest costs and expected return onassets should be recognised in financing

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provided on whether it is expected thatthey can be accounted for as definedbenefit schemes.

The element of the general reserverelating to pensions is disclosed

separately on the balance sheet.

The net pension scheme assets/liabilitiesshould normally be recognised in theunrestricted funds, although guidance isgiven for the rare situations when it ispossible to recognise these in restrictedfunds.

Pension costs should be allocated acrossthe relevant resources expendedcategories in the SOFA, following aconsistent methodology.

Material past service costs, gains/losseson settlements or curtailments should bedisclosed as exceptional in line with FRS3.

Actuarial gains and losses should berecognised in the gains and lossessection of the SOFA.

included in Net Operating Expenditure.

Adjustments are required to the GeneralFund for pension costs to bring it line withstatutory requirements.

Examples are provided of schemeswhich local authorities participate in.

Detailed guidance on accounting forDefined Benefit Pension Schemes isprovided in an appendix to the SORP.

costs/income.

Where multi-employer defined benefitschemes cannot show the entitys shareof the underlying assets and liabilitiesthen they should be accounted for on a

defined contribution basis. This may bean issue where staff have beentransferred under TUPE.

5b) Retirement benefits: Defined contribution schemes

The cost of defined contribution schemesshould be recognised within staff costs inthe income and expenditure account, andappropriate disclosures made.

Defined contribution scheme costsshould be allocated across the relevantresources expended categories in theSOFA.

Pension costs for defined contributionschemes should be recognised in the NetCost of Services.

Defined contribution scheme costsshould be recognised within operatingsurplus in the Income and ExpenditureAccount.

Disclosure is required of:

the nature of the scheme

cost for the period

any outstanding or prepaidcontributions at the balance sheetdate.

6a) Revenue: Turnover

A distinction is drawn between incomewhich can be applied at the discretion ofthe entity and income which is for specificpurposes designated by the grant-makingbody or donor.

All incoming resources should berecognised in the SOFA if it increases thecharitys assets.

Income should be reported gross with the

Customer and client receipts in the formof sales, fees, charges and rents shouldbe accrued and accounted for in theperiod to which they relate.

Income is required to be shown split

Disclosure of turnover and itscomponents vary with the size of sociallandlord and level of activities.

Turnover should be shown net of rentand service charge losses from voids.

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Income can only be recognised when aright to consideration exists, i.e. theterms and condition of funding have to bemet before it can be recognised.

Tuition fee rebates should be shown as

discounts.

exception of funds raised by third parties.

Contractual income should be shown inthe SOFA.

Attention is drawn to issues around

entitlement, particularly with performancerelated grants.

between General Fund Operations andHousing Revenue Account.

Service charges receivable should beshown in turnover.

6b) Revenue: Government grants

Grants or other contributions fromgovernment and other bodies should beaccounted for on an accruals basis andrecognised in the accounts when theconditions for their receipt have beencomplied with and there is reasonableassurance that the grant or contributionwill be received.

No distinction is made between grantsand donations. See accountingrequirements in 6c) below.

Revenue grants should be matched withthe expenditure to which they relate.Grants made to finance the generalactivities of a local authority or tocompensate for a loss of income shouldbe credited to the revenue account of theperiod in which they are payable.

Revenue grants should be matched withexpenditure and disclosed separatelywithin the turnover note. The relatedexpenditure should be recognised underoperating costs.

Revenue grants should be recognised inthe same period as the relatedexpenditure provided that conditions forreceipt have been satisfied and there is

reasonable assurance that the grant willbe received.

6c) Revenue: Donations receivable

Unrestricted expendable charitabledonations with no conditions attached arerecognised as donations in the Incomeand Expenditure Account. Donationswith specific terms which apply to thegeneral purposes of the institution areaccounted for in this way (i.e. asunrestricted).

Donations which create permanent

endowments are subdivided into twocategories: those where there are norestrictions on the income earned on theendowment (unrestricted); and thosewhere there are restrictions on theincome earned on the endowment.

Donations which are restricted to aspecific purposes are accounted for as

Grants and donations should not berecognised as incoming resources untilany associated conditions (as opposed toadministrative requirements such asaccounts submission) have been fulfilled.

Donations with donor-imposed conditionsshould be accounted for as deferredincome until they can be applied to theirintended purpose. Any deferred

incoming resources should be disclosedin the notes to the accounts.

Where the existence of a conditionprevents the recognition of an incomingresource, a contingent asset should bedisclosed where it is probable that thecondition will be met in the future.

[See also 8c below for restricted and

No specific guidance is provided. No specific requirements.

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expendable endowments until they canbe applied for that purpose.

Donations for fixed assets are shown asdeferred capital grants.

endowment funds].

Legacies should only be recognisedwhen there is sufficient certainty that theywill be received.

Donations for fixed assets should beaccounted for as restricted funds.

6d) Revenue: Gifts in kind (donated goods and services)

Gifts in kind (other than tangible fixedassets donated for use by the institution)should be credited to donations in Otherincome in the income and expenditureaccount.

Gifts in kind should be recognised in theSOFA at a reasonable estimate of theirgross value to the charity (or the amountactually realised if the goods are forresale)

Gifts must be recognised on the samebasis as a donation. The SORP alsodeals with the recognition of volunteers, aparticular issue affecting charities.

No specific guidance. No specific guidance.

6e) Revenue: Long term contracts

Requirement to apply SSAP 9 and FRSApplication Note G. Institutions shouldrecognise income and gains in theincome and expenditure account whilecontracts are in progress.

Reference is made to guidance in SSAP9 and FRS Application Note G.

Requirement to follow SSAP 9 andApplication Note G of FRS 5.

No specific guidance.

6f) Revenue: Agency arrangements

Where the institution disburses funds ithas received as paying agent on behalfof a funding body or other body, and hasno beneficial interest or risks related to

the receipt and subsequent disbursementof the funds, these funds should beexcluded from the income andexpenditure of the institution.

Institutions should provide amemorandum disclosure note, if requiredby the funder, on agency funds in the

Where the funder retains the legalresponsibility for ensuring the charitableapplication of the funds, then the fundsshould not be recognised in the SOFA or

balance sheet.

Assets and liabilities relating to agencyarrangements should be disclosed in thenotes to the accounts, but not included inthe balance sheet.

Notes to the accounts should describethe nature of the transactions and the

Examples are provided of situationswhere local authorise should considerwhether an agency arrangement mayexist. These include:

Business Improvement DistrictSchemes

Local Area Agreement Grant.

Guidance is provided in the context ofsupported housing and other managingagents, where there is a requirement toconsider the extent of the risks and

benefits of the scheme.

Four scenarios and their associatedaccounting treatments are identified inthe context of FRS 5.

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notes to the accounts. relat ionship with the funder and recipient.

6g) Revenue: Income from investments

Income from fixed asset investments,endowment assets and current asset

investments should be brought into theincome and expenditure account in full asa credit.

If the income relates to a restrictedendowment fund investment then it istransferred back to the fund after theoperating result.

The total return option only recognisesincome to the extent that it has beenapplied.

All receipts from subsidiary companies(except for the payment of goods and

services) should be shown as investmentincome. Gift aid payments should beseparately disclosed under investmentincome in the SOFA. Gift aid paymentsare only classified as investment incomewhen received from subsidiaries.

A total return option is allowed.

Interest on available for sale financialassets should be credited to the Income

and Expenditure Account.

No specific guidance, although there is acategory for Interest Receivable and

Other Income in the model Income andExpenditure Account in the Appendix.

7a) Expenditure: Grants payable

Bursaries and scholarships should beshown as expenditure, not netted offtuition fee income.

Grants payable should be recognisedonce a constructive or legal obligation iscreated usually a specificcommunication to a third party, i.e. morethan a funding decision by the charitystrustees, or a general statement in theannual report.

The costs disclosed for grants payableshould normally include any associatedsupport costs.

Disclosure should be provided of:

how the grants relate to the charitys

purpose grants to individuals and grants to

institutions (with material disclosuresbeing separately identified)

grants paid analysed by the natureand type of activity.

Specific guidance is provided where thelocal authority acts as the principal agentfor:

Business Improvement DistrictSchemes

Local Area Agreement Grants.

No specific guidance.

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7b) Expenditure: Staff costs and emoluments

No specific reference is made. Staff costs will be apportioned acrossresources expended in the SOFA.

The notes to the accounts should include

the total costs of employing staff whowork for the charity (whether or not theyare employees).

Disclosure should be provided of:

gross wages

ers NI and pension costs

average number of staff splitbetween full time and part time

bandings from 60k upwards

contributions to defined contribution

schemes.

Disclosure should be made of trusteeexpenses.

The full cost of employees should becharged to the accounts of the periodwithin which the employees worked.

Accruals should be made for wagesearned but unpaid at the year-end.

No specific guidance is provided.

7c) Expenditure: Overheads

No specific reference is made. Support costs should be allocated /apportioned across the ResourcesExpended categories in the SOFA. Themethod of apportion/allocation should beconsistent and reliable.

Support costs enable output-creatingactivities to be undertaken they are not

an activity in themselves.

Disclosure should be provided in thenotes to the accounts of material items insupport costs.

Support service costs should beapportioned to relevant activities orservices.

Corporate and democratic coreoverheads should be allocated to aseparate objective expenditure head.

Where overheads are not charged orapportioned the reasons for not doing soshould be disclosed in the notes to theaccounts.

No specific guidance is provided.

8a) Reserves: Revaluation reserve

Options to hold a revaluation reserve Charitable companies must report the A revaluation reserve has been A revaluation reserve is required when

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reserves should be disclosed in the notesto the accounts.

9a) Consolidation: Subsidiaries and group accounts

There is a requirement to prepare group

accounts to show separately the resultsfor the institution and the group.

Exclusion permitted where not material,restrictions over asset rights, or it wasintended for resale.

A parent charity should prepare

consolidated accounts including all itssubsidiary undertakings with someexceptions based around materiality andcontrol.

If a subsidiary is an insolvent registeredcompany which is being wound up then itcan be excluded from consolidation.

A subsidiary charity with narrower objectsthan its parents should be consolidatedas a restricted fund.

Local authorities with interests in

subsidiaries, associates and jointventures should prepare group accountsin addition to their single entity financialstatements.

A local authority group is defined as thereporting authority and its subsidiaryentities.

Consolidation accounting should followthe requirements of FRS 2.

All parent social landlords are required to

follow FRS 2. The small and mediumsized company group exemptions underthe Companies Act can be used.

Guidance is provided on consolidationissues for different types of sociallandlord (depending upon legal status).

Where group accounts are prepared thefollowing disclosures should be made:

the status of all entities in the group

the legal and commercialrelationships between all entities in

the group details of any material financial

transactions between group entities.

9b) Consolidation: Quasi-subsidiaries and special purpose entities

Where the objects of another entity aresubstantially or exclusively confined tothe benefit of the institution, the issue ofcontrol requires particular consideration.In such cases formal powers of controlmay not exist but dominant influence mayarise less formally. For example, thebenefiting institution may set out in

outline the nature or timing of the supportit wants to achieve. Alternatively thebenefiting institution may intervene on acritical matter. Where evidence exists ofsuch dominant influence being exercisedthe criteria for consolidation should beregarded as being met.

Where a subsidiary charitys objects aresubstantially different from the parentcharity (and there is no benefit to theparent) then no consolidation should takeplace.

Often charities undertake jointarrangements where they carry outactivities in partnership with other bodiesbut without establishing a separate legalentity. The notes to the accounts shouldprovide appropriate details of thecharitys commitment in the arrangement.

It is not appropriate to treat somestatutory bodies as a subsidiary of a localauthority due to the relationship betweenthe statutory body and centralgovernment. Consideration should begiven as to whether the body is anassociate or an investment.

Reference to the Companies Act notexempting entities from consolidation ofsubsidiaries because of their differentactivities.

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9c) Consolidation: Associates

Comments ate 9a) above apply.

Income from associates should berecognised in line with FRS 9 para 27.

Where a charity trustee and grant fundingis provided to another charity then thismay create an associate relationship,

depending on the nature and intendedpurpose of the trustee appointment.

The SOFA should show the net interestin the results of the associate as aseparate row.

Local authority group accounts shouldalso include interests in associates.

FRS 9 should be followed when

accounting for associates.

FRS 9 is generally considered unlikely toapply to social landlords.

9d) Consolidation: Joint venture entities

Use gross equity method in FRS 9,following requirements of paragraph 23.Columnar approach required.

Joint ventures should be accounted foron a gross equity method. Grossincoming resources from JVs can beshown on a line by line basis in theSOFA with a row then deducting theamount to distinguish it from group

incoming resources.The share of gross assets and grossliabilities should be shown in fixed assetinvestments in the balance sheet.

Local authority group accounts shouldalso include interests in joint ventureentities.

FRS 9 should be followed whenaccounting for joint ventures usingseparate lines in the primary statements.

FRS 9 is generally considered unlikely toapply to social landlords.

9e) Consolidation: Charitable trusts

Covered by associates and jointventures, although specific reference ismade to them as a type of entity whichmight be either an associate or jointventure.

Covered by associates and jointventures, although specific reference ismade to them as a type of entity whichmight be either an associate or jointventure.

Charitable trusts such as the CommonGood Fund and Trust Funds should beconsolidated if they meet FRS criteria.


10a) Taxes: Deferred tax

It is unlikely that deferred tax will havesignificant implications for institutions.However, subsidiary entities (where theiractivities are not charitable) must complywith FRS 19 and recognise deferred taxon any timing differences that haveoriginated and not reversed by thebalance sheet date. This deferred tax

Not generally applicable to charities, butFRS 19 will apply in consolidatedaccounts that include non charitablesubsidiaries.

Where a subsidiary makes a gift aidpayments of all its taxable profits to itsparent charity a provision for deferred tax

FRS 19 is applicable to group financialstatements but not applicable to singleentity financial statements.

FRS 19 is applicable and examples areprovided of when it is likely to apply.

Deferred tax will not normally be providedfor on the revaluation of housingproperties where they are carried atExisting Use Value for Social Housing aschanges do not go through the Income

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will then need to be consolidated in thegroup financial statements.

is unlikely to be necessary. and Expenditure Account. The exceptionis where there is a binding commitmentto dispose of the revalued asset.

10b) Taxes: Current tax

Irrecoverable VAT on inputs should beincluded in the costs of such inputs. Anyirrecoverable VAT allocated to tangiblefixed assets should be included in theircost.

Irrecoverable VAT should be included inthe relevant cost headings on the face ofthe SOFA.

It is recommended that the accountingpolicy for irrecoverable VAT be disclosed.

FRS 16 is generally not consideredapplicable to charities.

FRS 16 is not applicable to council tax,business rates or precepts/distributionsfrom the NNDR Pool.

FRS 16 applies to group financialstatements and to single entity financialstatements (with the exception ofdividends payable).

FRS 16 is relevant for social landlordsbut no specific guidance is provided.

11a) Other areas: Segmental reporting

In a minority of cases institutions mayhave material segments of other activities(such as a university press) or significant

geographical operations (such as thosein another territory) where SSAP 25would apply.

Only considered to be applicable for thelargest charities. Additional disclosureswould be required for geographical

region and segment net assets (theSORP already requires disclosure ofactivities by function).

Segmental information may be requiredwhere consolidation obscures informationabout different undertakings andactivities.

The general principles of SSAP 25 arebuilt into the SORP in that the Incomeand Expenditure Account requires

disclosure by service provided, with theoption to provide further geographicaldisclosures if necessary.

SSAP 25 is considered unlikely to beapplicable to social landlords exceptwhere they undertake non housing

activities. All housing related activitiesare considered to be one segment.

11b) Other areas: Related party transactions

Material related party transactions mustbe disclosed in line with FRS 8. TheSORP also re

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