Developments in the not-for-profit sector

September 2017

Welcome to our summary highlighting some of the developments in the not-for-profit sector.


Click here to read FRED 68

The FRC has published FRED 68 Payments by subsidiaries to their charitable parents that qualify for gift aid.  The aim of the consultation is to unify the diverse practice in the sector following the publication of the ICAEW guidance TECH 16/14BL Revised. The amendment confirms that, for a wholly owned subsidiary, a distribution to a charitable parent, where it is probable that the payment will be made within the 9 months and will qualify to set against profits for tax purposes, can be treated as a tax expense.  The tax effects of the payment shall be presented in the profit and loss and the tax effects shall be consistent with the treatment planned to be used in the entities filings. Such a payment is an exception to the principle that tax effects should be presented in the same component of total income or equity as the transaction.

The amendment does not make any change to the recognition of the liability and following FRS 102 32.8 a liability for the distribution can only be recognised when there is a deed of covenant in place, however the distribution can be shown as a designated reserve.

The amendment has an effective date of accounting periods beginning on or after 1 January 2019 but can be early adopted where both this and the changes in FRED 67 are adopted also.


Click here to read FRED 67

The FRC has published FRED 67 Triennial review 2017 Incremental improvements and clarifications.  The majority of changes are considered editorial and classifications, however the following changes may have an impact on the financial statements.

  • The removal of the undue cost and effort exemptions with a policy choice, in particular where an investment property is rented to another group company there is now a choice whether to hold the investment at cost or fair value.  (On transition the fair value may be deemed opening cost).
  • The introduction of a principle based description of basic financial instruments to accompany the detailed conditions may mean that a small number of financial instruments can now be classified as basic and held at amortised cost.

Other changes likely to have less impact for not for profit entities include:

  • For small entities a loan from a director or a shareholder can now be included at transaction cost rather than present value. 
  • Fewer intangible assets may be recognised on a business combination in addition to goodwill.
  • The review clarifies that Public Benefit Entities (PBE) and entities within a public benefit group shall apply all paragraphs marked PBE.  In addition FRS 102 makes clear that where a SORP applies compliance with the SORP should be disclosed and any departure from the SORP explained in accordance with FRS 100 paragraph 6.

More detail on the amendments can be found in: Deloitte Need to Know summary of the draft amendments to FRS 102

The amendments are effective for accounting periods beginning on or after 1 January 2019 but may be adopted early if all amendments are applied at the same time.

Law Commission Review

Click here for links to the Law Commission report

In September the Law Commission published a new report Technical issues in charity law as part of its 11th Programme of Law Reform and also stemming from Lord Hodgson’s 2012 review.  Some of the key recommendations include:

  • Increased flexibility over obtaining advice when selling land
  • Changes to the law to allow charities to amend their governing documents more easily
  • Increased flexibility around permanent endowment including to ‘borrow’ for up to 20 years against up to 25% of the permanent endowment
  • Removing legal barriers to mergers between charities
  • A new statutory power to allow trustees to make small ex gratia payments without prior authorisation

ICAEW Review

Click here to read the ICAEW report

The ICAEW Audit and Assurance Faculty has just released an audit insight for the charity sector which focuses on four areas:

•        How can charities demonstrate they are making a positive impact?

•        How can charities retain public trust?

•        How can charities become more resilient?

•        How can charities maximise their resources?

The report states that charities need to demonstrate that they act with integrity and learn from their mistakes.  It talks of the challenges charities face in bridging the disconnect between what a charity does and how it is manged and operated and what the public thinks it does and how the public thinks it should be managed and operated.   The report notes that investment in training, evaluation, internal systems and fundraising are important but often undervalued by funders and that the public and the importance of sustainability and reserves needs to be recognised.

Charity Governance Code

Click here for the Charity Governance Code for Larger Charities

The Charity Governance Code was finalised in July 2017. The Code is not a legal or regulatory requirement but provides guidance on setting principles and recommended practice for good governance. The Code is intended to be a continuous tool for development and applicable to all charities, even though governance practice may differ significantly depending on the size, income, complexity and activities of the charity.

There are seven fundamental principles forming the code:

•        Organisational Purpose;

•        Leadership;

•        Integrity;

•        Decision-Making, Risk and Control;

•        Board Effectiveness;

•        Diversity; and

•        Openness and Accountability.

It is intended that Charities applying the code include a brief statement in their annual report with an ‘apply or explain’ approach.  The Code is voluntary so this is not ‘comply or explain’ as for example required by the UK Corporate Governance Code.

The Charity Governance Code Steering Group has published two versions for larger and smaller charities.  It is expected that Charities with a typical annual income of over £1m and externally audited accounts will use the larger version of the code.

If you would like to discuss anything further please contact your local Deloitte Partner or email us at Deloitte Charity and Not for Profit Community.

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