International developments in non-profit financial reporting

The Charities Statement of Recommended Practice (SORP) is a very familiar part of UK-Ireland Generally Accepted Accounting Practice (GAAP). The SORP has been adopted throughout the UK and is under active consideration for Ireland. Once GAAP is updated with the new Financial Reporting Standard FRS102 a new SORP will be developed. Why then does the development of International Non-Profit Accounting Guidance (INPAG) matter? It matters for two reasons: GAAP is not developed in isolation and INPAG could offer a better way forward.

How INPAG came about

The impetus for the International Financial Reporting for Non-Profit Organisations (IFR4NPO) initiative came from UK-Ireland. The Consultative Council of Accountancy Bodies (CCAB) carried out international research in 2014 and the resulting report recommended that an international framework be developed.

In response ACCA issued some advice in the form of the Companion Guide (2015) based on the SORP and the International Financial Reporting Standard for SMEs (IFRS for SMEs). Subsequently the IFR4NPO project came into being with a mission to development the first global standard for non-profits. It too will be based on the IFRS for SMEs.

Why INPAG might become a better solution for charities

Beyond the next SORP (which is expected in 2025) INPAG could be a better solution because:

• UK-Ireland GAAP has alignment with IFRS as a goal and INPAG fits this philosophy.
• INPAG is led by, and developed for, non-profits whereas GAAP is for-profit led with adaptations made for charities - a role fulfilled by the SORP.
• The current GAAP approach is not serving the charity sector well. This is shown by two submissions from the charities SORP-making body to the FRC requesting more flexibility and latitude to modify GAAP for charities.

The consultation process and how to get involved

The second of the INPAG Exposure Drafts (ED2) closes on 15 March. ED2 is looking at key topics including revenue recognition and grant expenses. Later this year ED3 will look at the adoption process and other topics. An ACCA paper on the second exposure draft compares ED2 with the current SORP so that you can focus your response on the key issues that will affect your charity/ charity clients. Your views and suggestions do matter.

Nigel Davies, FCCA – UK member IFR4NPO Practitioners’ Advisory Panel

More information

ACCA paper on comparison of INPAG Exposure Draft 2 with SORP

CCAB report (2014)

ACCA Companion Guide (2015)

IFR4NPO project

Charities SORP Committee announcements

INPAG Exposure Draft 2