This article was first published in the May 2012 Singapore edition of Accounting and Business magazine
‘What are the main differences between the Singapore Financial Reporting Standards (FRS) and the Charities Accounting Standard (CAS)? Which should I adopt?’
This is probably the one question charities started asking themselves when the Accounting Standards Council (ASC) issued the new CAS as an alternative financial reporting framework for charities in Singapore.
Before the issue of the CAS, the frameworks available were the FRS or the Statement of Recommended Accounting Practice 6, Accounting and Reporting by Charities (RAP 6). Typically, charities used the FRS for measurement criteria and the RAP 6 for disclosure templates.
The CAS is more focused, taking into account the peculiarities of charities. It is, in essence, a fit-for-purpose and simpler framework for charities, see table below.
The CAS is not applicable to charities that are (1) government-funded educational institutions and (2) statutory bodies scheduled in the Accounting Standards Act.
One point to note is that ‘significant investee’ is not defined by the CAS, which may give rise to judgmental issues and diversity in practice for charities with investees.
What are the key differences?
The table below summarises the key differences between the CAS and the FRS.
The statement of comprehensive income under FRS 1 requires all revenues/gains and expenses/losses to be included in the statement, with details disclosed in the notes. Fund accounting remains the key feature of charity accounting. The CAS requires the statement of financial activities (SOFA) to show all incoming resources and resources expended in the year on all funds separately including capital gains and losses, and a reconciliation of movements. Unlike the FRS, there is no statement of changes in equity as there are no owners. This will be clearer to the public as it shows, at one glance, how the charity receives and uses resources to further its objectives.
Unlike the FRS, a third balance sheet is not required when there is restatement/reclassification in prior year figures. This will lower the cost of preparing financial statements.
Asset-related grants and donations
The FRS permits two methods of accounting for grants. One sets up the grant as deferred income which is recognised as profit/loss on a systematic and rational basis over the useful life of the depreciable asset. The other method accounts for the carrying amount of the depreciable asset net of the grant, for which asset will now have a reduced depreciation charge. A significant difference is the removal of asset approach for grant accounting in the CAS.
The CAS, on the other hand, prescribes that asset-related grants or donations are to be recognised in SOFA as received and not deferred over the life of the asset. The relevant fund will then be reduced over the useful life of the asset in line with its depreciation.
Borrowing costs and development costs
Charities with assets under construction or internally generated intangible assets are not allowed to capitalise the borrowing costs or development costs incurred. These costs are expensed when incurred. The FRS, on the other hand, requires capitalisation of these costs if they meet the capitalisation qualifying criteria.
PPE, intangible assets and investment properties
The CAS prescribes the cost method for property, plant and equipment (PPE), intangible assets and investment properties. Revaluation is not allowed. Assessment of indication of impairment is only required for investment properties but not for PPE or intangible assets.
This is different from the FRS which allows an alternative measurement method that allows PPE and intangible assets to be measured at revalued amounts and investment properties, at fair value. There is a pull for low depreciation charge in appendix 3 of the CAS.
The FRS requires indication of impairment assessment to be performed for these non-current assets. However, if there is a significant difference between the carrying amount and market value of investment or other properties, the market values and the bases used are to be disclosed.
The simplified cost model (and without indication of impairment assessment) under the CAS is likely to lower compliance costs.
Investment in financial assets
Charities with investments in equities, bonds or other financial instruments will be impacted by the measurement criteria under the CAS.
The CAS requires these to be stated at cost. The FRS allows cost or fair value methods depending on the relevant FRS 39 categories for investments (ie HTM, AFS, FVTPL, loans and receivables). This reduces the cost required to determine the fair value of financial instruments under the FRS.
Additional disclosure requirements under the CAS
To reinforce the importance of accountability to donors and how their donations are used, the following requirements are included in the CAS:
1 The definition of related parties under the context of the charity sector and the related disclosure requirements.
2 Additional disclosure requirements in relation to loans given to any parties including the loan recipient’s relationship with the charity and/or board members, the amount, collaterals obtained, interest, repayment terms and any amounts repaid. This is required even if the loans have been fully settled during the year. Charities using the FRS are required to comply with additional regulatory requirements under the Charities (Accounts and Annual Report) Regulations 2011 relating to disclosures on loans extended to any party.
3 It is not a common practice for governing board members or their close family members to receive remuneration or benefits from the charity. If there is, disclosure of all remuneration, including non-cash benefits and compensation, advances, credits and guarantees are to be disclosed. A negative statement is required if no remuneration or benefit is given.
It is mandatory for charities to continue to comply with the FRS or the CAS by the specified implementation dates. Early adoption is encouraged as the RAP 6 will cease to be available. Charities are also discouraged from switching between the CAS and existing standards (eg the FRS) unless there are compelling reasons to do so. This is to ensure comparability of the charity’s financial statements across periods.
Charities adopting the CAS need to consider the modification costs (if any) of the existing accounting system and the need to retrain accounting-related staff. The CAS aims to simplify reporting needs, increase the level of transparency and accountability to the donating public, and enhance consistencies in accounting practices and presentation across charities.