To Tell Or Not – What Secrets?
By Frank Lieshout | 5 min read
In our previous articles, we mentioned some helpful advice regarding the preparation, audit and review of your financial statements.
- Money-saving tips in terms of complying with financial reporting regulations.
- How to get the most out of your time and money spent on the reviewing and preparing of your financial statements
- Why it’s actually not that painful preparing your financial statements and getting them reviewed.
- Common issues with the format of Tier 3 & Tier 4 charities’ financial statements
- Enhancing your financial statements
- Life’s Got Easier
Today we are going to look at ‘What Secrets?! – To Tell or Not To Tell
Every day we are faced with the dilemma of what to tell or what to keep secret about ourselves:
- Age/Weight – that old chestnut
- Something you bought – your credit card statement doesn’t lie
- Favourite TV show – no one else probably thinks watching the 10th rerun of Friends is cool
- Your web browsing history – your computer also doesn’t lie
- An embarrassing incident – enough said
- Lies told – it was only a small one – yeah right
- Financial Position and Income – except if you think it is good and you are pretentious
When it comes to what you need to disclose in Charities’ financial statements, it is thankfully more clear-cut.
Or is it?
Financial Position and Income, for most people, are fairly understandable. Profit too.
Basically,
- Income is amount of money received
- Profit is income less expenses incurred
- Financial Position is assets less debt
As is with a lot of things in life, it’s not necessarily that easy.
Take these two examples.
But what about when an asset is donated?
No money has been paid and you suddenly have an asset. Should you tell the readers of the financial statements about the asset, and at what value should it show?
How it is treated depends on which reporting tier your charity is under.
Under Tier 3: Public Benefit Entity Simple Format Reporting – Accrual (Tier 3), a significant donated asset is accounted for as revenue in the Statement of Financial Performance and as an asset in the Statement of Financial Position, unless the value of the donated asset is not readily obtainable. If the value is not readily obtainable, a description of the donated asset is disclosed in the notes.
Under Tier 4: Public Benefit Entity Simple Format Reporting – Cash (Tier 4), all significant non-cash donated items that the charity has at year end should be disclosed as a resource in the Statement of Resources and Commitments. If the value of any non-cash donations is readily obtainable, it is helpful for the value to be disclosed. However, disclosing a value isn’t required under Tier 4.
What about a Grant that is received during the year but not all of it is spent at balance date?
If subject to Tier 3, any unspent Grants at year end are not income and need to be treated as a liability (debt). This is called the matching principle, i.e., matching the income received to the period of the corresponding expense.
If subject to Tier 4, any significant amount of Grants unspent go in the Statement of Resources and Commitments as a commitment.
Other things need to be told in the form of disclosures in the Notes to the Financial Statements.
The main one here is ‘Related Party’ Disclosures.
This links to one of the fundamental requirements of a charity – transparency.
It can’t be a secret who is wearing two hats, for example a trustee (or their business entity) who gets paid for providing goods or services to the charity.
What needs to be disclosed is:
- Description of the related party
- Description of the transaction
- $ Amount for the current year and, if applicable, last year
Well, what a dilemma – what to tell or not to tell.
At least it’s a little easier when it comes to financial reporting for Charities.
I feel a song coming on by The Beatles – ‘Do You Want To Know A Secret?’
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