Access NFP Financial Reporting Seminar for Not-for-Profits and Charities
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Access Not-for-Profit Financial Reporting Seminar Rob Barr Divisional Director – NFP Access Group
Transcript of Access NFP Financial Reporting Seminar for Not-for-Profits and Charities
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
