Access Not-for-Profit

Financial Reporting Seminar

Rob Barr

Divisional Director – NFP

Access Group

Who we’re working with

Membership Fundraising

Education Service DeliveryCultural

Our world

offices in UK,

Ireland and

France

125,000+

Clients

Over

600Employees

16%Growth in

2013

£43mTurnover

FY13

22Yearsexperience

delivering

solutions

97% retention of

customers over the last 8

years

Presenters

Adrian WildAssociate Director

Maureen SebanakittaDirector of Financial Operation

Ben RevillEnterprise Manager - NFP

Joanne FarragherNFP Finance Consultant

Agenda

Time Presentation Presenter

9.30 Welcome & Introduction Rob Barr, NFP Divisional Director, Access

9.35 FRS 102 & The New SORP - What It

All Means?

Adrian Wild, Associate Director, Smith &

Williamson

10.25 Our Experience of Using Access

Dimensions for Financial Reporting

Maureen Sebanakitta, Director of Financial

Operation, The Methodist Church

11.15 Break

11.25 How to Effectively Communicate

Financial Information

Ben Revill, NFP Enterprise Manager

Joanne Farragher, NFP Finance Consultant

Access

12.05 Summary & Close Ben Revill, NFP Enterprise Manager, Access

12.10 Lunch & Networking

FRS 102 & The New

SORP – What It All

Means?

Adrian WildAssociate Director

Smith & Williamson

FRS 102 and the new Charity SORP

Adrian Wild, Associate DirectorAssurance and Business Services

Disclaimer

This seminar is of a general nature and is not a substitute for professional advice. No responsibility can be

accepted for the consequences of any action taken or refrained from as

a result of what is said.

Agenda

• The whys and wherefores

• Choices

• Implications - FRS 102

• The new SORP

• What should you be doing?

The whys and wherefores

(Or why have they changed everything? Again.)

The new standards

FRS 100 Application of financial reporting requirements

• Who does what?

• SORPs

• Public benefit entities

FRS 101 Reduced disclosure framework for IFRS preparers

•List of disclosure exemptions from full IFRS for ‘qualifying entities’

FRS 102 The FRS applicable in the UK and Ireland

•Derived from IFRS for SMEs

•List of disclosure exemptions for ‘qualifying entities’

FRS 103 Insurance contracts •Relevant for insurance companies

Choices

Old UK accounting standards

• Full UK GAAP

• Small entities could optionally follow Financial Reporting Standard for Small Entities (‘FRSSE’):

– some simplifications of basic accounting

– significantly less disclosures

• But: Charities – must follow the SORP

– imposes significantly more disclosures

– no benefit in using the FRSSE

New accounting standards

• FRS 102

• Small entities

– can continue to use the Financial Reporting Standard for Small Entities

• Possible benefit in using FRSSE:

– underlying accounting does not change

• But, for how long?

What is small?

• Current definitions

– turnover less than £6,500,000

– gross assets less than £3,260,000

– employees less than 50

(must meet two out of three criteria)

• Expected as from 1 January 2015:

– turnover less than £10,200,000

– gross assets less than £5,000,000

– employees less than 50

(must meet two out of three criteria)

The FRSSE: what is its future?

• FRSSE

– based on old UK accounting standards

• New class: Micro entities

• Options for the FRSSE:

– simply get rid of it

– build in disclosure exemptions to FRS 102

• accounting will stay the same

– 1 January 2016?

FRS 102

What are the main changes?

Impact

An example

• Charity A

– assets £4.3m

– net incoming resources for year £0.6m

• Charity B

– assets £3.8m

– net resources expended for year £0.65m

What’s changing?

• Terminology

• Some accounting very different

• Disclosures

• But a lot will be familiar

– but watch the detail!

FRS 102: primary statements

• Use Companies Act format

• Statement of Comprehensive Income and Income Statement

• Statement of Financial Position

• Statement of Changes in Equity (if needed)

• Statement of Cash Flows

FRS 102: What else will look familiar?

• Inventories (except the name)

• Leases

• Liabilities (but not financial instruments)

• Borrowing costs

FRS 102: What else will look familiar?

• Revenue

• Related parties and disclosures

• Impairments

• Acquisitions

• But: some changes / differences for charities!

FRS 102: Similar … but different: Property, plant and equipment

Similar

• Recognition, measurement and revaluations

But

• Residual values – will be based on current prices

• Major spare parts and stand by equipment

• Impairments – slightly different rules

FRS 102: Similar ….. but different: Prior period adjustments

Now FRS 102

Change of accounting policy

Fundamental error

Material error

FRS 102: Similar ….. but different: Investment properties

• Slightly different definition

• Must be held at valuation

– unless you have a very good excuse not too

• Change in value

– part of normal profit

• Charities: impact is that changes in value move up the SOFA

FRS 102: Similar … but different Business combinations and goodwill

Similar

• Principles of acquisition accounting

• Capitalisation and amortisation of goodwill

But

• Merger accounting not permitted (in general)

• Goodwill life - presumption is 5 years

FRS 102: things which will be (or could be) different

• Employee benefits

• Financial instruments

• Charitable income – see SORP

• Intangible fixed assets

• Income tax

• Agriculture

• Impairments of charity assets

• Charity mergers

Charity combinations (1)

Acquisition – e.g. buy a trading subsidiary

• Normal rules apply (as per previous slide)

Nil consideration acquisition

• Treat the fair value of the incoming assets as a gift (no change)

Charity mergers

• Merger or acquisition?

• Strict criteria

• Not optional

• Use merger accounting

– no fair values

– treat as though always been merged

Impairment – measurement of charitable assets

• Current UK GAAP:

– can use alternative measure of service potential rather than recoverable amount

• FRS 102:

– present value of the asset’s remaining service potential plus the net amount the entity will receive from its disposal

– depreciated replacement cost?

– more onerous?

– more impairments?

Employee benefits

• Defined benefit pensions schemes use the model found in IAS 19 (2011)

– expect P&L charge to be higher

• Multi-employer DB pension schemes:

– recognise agreed deficit payments

• Holiday pay accruals – required under FRS 102

Financial instruments

• What are they?

• Accounting treatment depends on classification:

– basic: use amortised cost

– other: use value

• Strict criteria

– can be very complex

– FRS 102 likely to change

Financial instruments: examples of possible changes:

• Borrowings:

– cap, collars, swaps

• Foreign currency

– commitments to buy / sell

• Lending / borrowing at below market rate interest

– for example, inter-company debt

exemption for charities in certain circumstances

What changed?

• Charity A (and B) has

– investment property

– intercompany loan

– forward exchange contract

• Changes / impact

– surplus / deficit

– liabilities

– deferred tax (if tax paying entity in group)

When?

• Accounting periods starting on or after 1 January 2015

• So …for full year accounts …Y/E 31 December 2015

When?

• December year ends

– apply 31/12/15

– restate 31/12/14

– transition point 01/01/14

Proposed new SORP

(More change!)

Why?

• Changes to UK GAAP

• To better meet stakeholders’ needs

Proposed new SORP

• Exposure draft issued July 2013

• Consultation closed 4 November 2013

• Responses published Q1 2014

• Expected to be published soon

• Slides based on the exposure draft and known changes … final SORP could be different!

Proposed new draft SORP at a glance:

• Applies to FRS 102 and FRSSE preparers

• Modular and can be customised on the SORP micro site

• ‘One-stop shop’?

• Accessible – or too simplistic?

Two SORPs!

• Draft SORP: paragraphs

– applicable to all charities

– applicable to FRSSE

– applicable to FRS 102

• Final version: two SORPs

– one for FRSSE

– one for FRS 102

• For clarity

• FRSSE changes – no change to FRS 102 SORP

Main changes

• SOFA headings

• Income recognition

• Grant disclosures

• Mixed motive investments

SOFA headings – Governance costs

• Part of support costs within charitable activities expenditure

• No separate SOFA heading

• Must be separately disclosed in the notes

Income recognition

Criteria for recognition of charitable income:

• Entitlement,

• Measurement,

• and Probable not virtually certain

Impact on legacy income, pledges, etc

Investments

Social investments:

• Definition

– investments made wholly or partly to further charitable purposes

• Programme related investments

• Mixed motive investments

Key management personnel

• Definition

– persons having authority for planning, directing and controlling the activities of the charity

– includes trustees and senior management team

• FRS102 preparers only

– must disclose total amount of employee benefits received by KMP

– charities may also disclose the amount paid to senior management personnel on an individual basis

What has not changed (much)?

Trustees’ Annual Report

• Impact reporting mentioned but not mandatory

• Basic requirements are the same

What has not changed (much)?

Accounts formats

• SOFA layout

– columnar format

• Fund accounting

• Balance sheet format

• Funds disclosures

Conclusions

Choices

• Fundamental:

– if eligible: FRSSE or FRS 102?

– when: now or when mandatory?

• On transition

– some choices on transition

• Revaluation of fixed assets

– opportunity for a one off revaluation

What do you need to do?

• Assess the impact of the changes on your charity

• Determine whether you will apply FRS 102 or the FRSSE

• Consider transition choices

• Plan

• Obtain professional advice as needed

What do you need to do?

• Allow enough time

• Allocated appropriate resources

• Communicate

– senior management team

– trustees

– auditors

– others as necessary

Smith & Williamson LLPRegulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of

Nexia International

25 Moorgate

London

EC2R 6AY

Tel: 020 7131 4000 Fax: 020 7131 4001www.smith.williamson.co.uk

Our Experience of Using

Access Dimensions for

Financial Reporting

Maureen SebanakittaDirector of Financial Operation

The Methodist Church

Our Experience of Using Access

Dimensions for Financial Reporting

Presented by:

Maureen Sebanakitta FCCA MBA (OU)

Director of Financial Operations

Background information:› Turnover: £47m (2012-13).

› Net Assets: £160m including investments and properties

› Fund Structure: General, Restricted, Endowment

Staff: 240 employees

Finance Team: 13 staff.

Income:› District Assessment (26%)

› Voluntary sources (23%)

› Room and conference hire (14%)

› Investment Income (10%)

› Other (27%) – including gains on property disposals

Expenditure› Grants

› Staff

› Other

The complexity of our funds structure and the inability of the previous system to cope with it

Predominantly Excel based reporting

System not optimised for external or internal reporting

Illogical chart of accounts structure that took hours to explain and required large staff team to “hold it together”

Weak system controls and reliance on staff to know what to do

The results:› Confusion

› Inconsistencies

› Long and protracted audits

› High staff turnover

› Large staff team

› Complex data entry processes – 6-8 line journals for a single item

› Key finance processes such as budgeting and reporting – could take up to 30 days.

Finance Department – perceptions

› Mistrust

› Very low profile

› Lengthy discussions and debates about

finance rather than the business

2012-13 Budgets and Accounts – first set

of numbers prepared on the new system

Restoration of confidence and trust in

the numbers – “one version of the truth”

The Church is moving major items of

business swiftly – why?

› Clarity

› The Finance Office is now a true business

partner

BEFORE

F1 F2 F3 F4 F5 F6 F7 F8

Gift Aid

Tag

P11D C.

Centre

Nominal VAT Project Donor

Type

Fund

AFTER

CAT1 CAT2 CAT3 CAT4 CAT5 CAT6 CAT7 CAT8

Source of funding

CostCentre

Nominal Cluster Internal Reporting

External Reporting

Fund Type Fund Family

Key stakeholders: auditors, trustees,

budget holders – have a better

understanding of the business.

Financial controls are effective and the

immediate impact of this is improved

cash flow and

General reserve is gone from a recurrent

deficit of £600k to surplus

The staff team

› 12 staff

› 1 dedicated systems administrator

› Low turnover

› Higher degree of job satisfaction

› Results are evident

Currently – all the codes on the chart of

accounts have an external reporting

category to indicate where they should

be reported in the SOFA or Balance

Sheet

We intend to create another category

called “NEW SORP” to track the changes

and prepare our accounts in 2016.

How to Effectively

Communicate

Financial Information

Ben RevillEnterprise Partner – NFP, Access Group

Joanne FarragherNFP Finance Consultant, Access Group

Strategic division

– 990+ NFPs

– 220 UK based personnel

Sector specific functionality

– SORP

– SOFA

– Gift Aid

– HMRC compliance

– Complex VAT (exempt, partial)

– Trusts, Grants, Memberships, Ticketing, Shops, GiK

– …end to end solutions (‘ERP’ for NFPs)

About Access

How do we measure financial performance?

Report types

– Current and historic reporting that can dovetail with

SORP headings

– Actual YTD, budget and variance

– Statutory and operational view of information

– Detailed reporting

– Programme/activity

– Division

– Department

– Fund

– Expenditure type

The challenges

Reporting both statutory and operational reports that satisfy

key stakeholders

Viewing project/fund/programmes data where project spans financial years and periods

Understanding true costs of all programs to develop accurate,

realistic budgets

Pulling data from multiple sources for reporting purposes (non

financial and financial data, fundraising, HR)

Accuracy and timeliness of producing management

information (re-key data from Excel)

Who are we reporting to?

People

– External

– Reporting to Donors - Assurance their gift in safe hands

– Reporting to Funders - Assurance contract terms are

being met

– Regulations and Auditors - Assurance legal framework is

met

– Internal

– Reporting to Budget Holders

– Reporting to Department Heads

– Reporting to Board and Trustees

The tools we use

WorkflowManage processes to guarantee quality and efficiency

Doc ManagementAccess to critical documents 24/7 wherever you are

IntegrationBest of breed integration with 3rd

party SQL products

Reports & alertsBusiness intelligence, analytics, by-exception reporting and management dashboards

SQLBuilt on Microsoft SQL Server technology

The tools we use

Demonstration

Benefits of measuring financial performance

“Access Dimensions has

reduced the time taken to

close our monthly accounts by

50%.”Sue McDonald, Director of Finance

“… We make the most of our

donations and funds by having

complete visibility of our income across departments.” Liz Wilson, Director of Finance &

Operations

Benefits of measuring financial performance

“Our finance team now receive 50

per cent less requests for

information.” Stafford Cruse, Head of Finance

“It used to take me five minutes to

take some information out of our

previous systems. In Access

Dimensions I do this within ten

seconds.” Richard Slatford, Financial Controller

Thank you for your time

tellmemore@theaccessgroup.com

0845 345 3300

www.theaccessgroup.com