Published on: January 16, 2012
Charities Accounting Standard (CAS) – To Adopt or Not To Adopt?
Charities Accounting Standard (CAS)1 – To Adopt or Not To Adopt? – Suhaimi Salleh, FCPA (Singapore), FCMC, PMC, AFP
"It's not easy to convert to CAS. It's time consuming."
"We don't have the knowledge to prepare our accounts according to CAS."
"Costs apportionment to the various cost categories is difficult to do and not cost effective."
"Best to stick to FRS since we are very familiar with the reporting format."
As an auditor and a trainer on the Charities Accounting Standard (CAS) these are just some of the many comments that I have heard since the launch of the CAS in June 2011.
The apprehension expressed by the preparers of charities' financial statements is quite understandable. For the first-time adopters of the CAS, the task ahead can be quite daunting. Some of the concerns include:
1. Changing our normal understanding of "income" under the Financial Reporting Standard (FRS) to suit that of the CAS. Currently, income in CAS includes both income and capital items. For example, under the FRS, donation to a permanent endowment fund, which is capital in nature, will be taken up directly to the endowment fund in the balance sheet. However, it will be recognised as income (under the endowment fund column) in the Statement of Financial Activities (SOFA) under the CAS, if the donation meets all three of the income recognition criteria – entitlement, certainty and measurement.
2. The allocation of support costs to the various categories of costs may be very challenging to some. The bases and accuracy of the costs apportionment are some of the concerns expressed by accountants. Some even ask whether there is a need to prepare time sheets to account for the time spent by employees in the relevant cost areas. The CAS, however, does not prescribe such details. What is required is that the bases of apportionment are reasonable and justifiable and it is consistently applied over the years, whether it is time spent, area occupied, headcount or any other basis used.
3. The comparative year's figures can be difficult to determine, as the CAS treatment of some balance sheet and SOFA items is different from the FRS treatment. However, it is stated in the CAS that charities need not restate or reclassify the comparative information to conform to the accounting principles of the CAS if it is impracticable to do so. The Charities Unit advised that for such situations, charities can have the option to attach the previous year's audited financial statement to serve as a comparison.
Why Adopt the CAS
Considering the challenges mentioned above, should charities then adopt the CAS?
More Relevant to Charities
The CAS is a much simpler financial reporting framework compared to the FRS. Unlike the FRS which is meant for all types of activities and entities, the CAS has been developed to specifically meet the needs of charities.
Since the CAS was developed for charities, the accounting treatment of certain transactions that are applicable to charities are addressed in the CAS and not in the FRS. Examples of such transactions include the accounting treatment for "Preservation of Monument" assets, and for endowment and restricted income funds that are unique to charities.
It is important to note here that partial adoption of the FRS or CAS is not allowed. Charities that have adopted the FRS prior to the introduction of the CAS and do not wish to adopt the CAS cannot adopt part of the CAS when applying its accounting standard for the treatment of transactions that are not addressed specifically in the FRS. Charities are however allowed to use the SOFA format in its Statement of Comprehensive Income under FRS.
Less Onerous for Charities
Charities that choose to adopt the CAS will find that it is not as daunting as it first appears to be. In fact, it is a less onerous accounting framework compared to the FRS as only relevant extracts of the FRS have been included in the CAS. This is evidenced by the reduced size of the CAS which is approximately one-tenth that of the FRS.
Governing Board Members are Responsible
Regardless of the format selected, charities need to note that the responsibility of preparing the financial statements in accordance to the CAS or FRS rests with the governing board members and not with the auditors. It is the auditors' duty to check that the financial statements comply with the relevant standard. Hence, it does make sense for charities to adopt a financial reporting framework that is less onerous for the governing board members.
Teething Issues Can Be Overcome
When the RAP6 was first introduced in 2006, many charities faced teething issues during its implementation. However, many of these issues have been resolved over the years and preparers of RAP6-based financial statements no longer find it a hassle. First-time preparers of CAS-based financial statements may face the same situation but once they get used to the CAS, I expect the challenges and problems to be reduced.
Readily Available Courses & Seminars on CAS
Currently, there are many courses and seminars conducted by the Social Service Training Institute (SSTI) and the Institute of Certified Public Accountants Singapore (ICPAS) on CAS. Charities that are still unsure of the CAS are encouraged to send their accounting professionals to such courses, some of which are offered with subsidies from the VWO-Charities Capabilities Fund (VCF). The VCF also provides funding for charities to engage consultants to help them with their conversion to CAS.
So should charities then adopt CAS? In my opinion, they should, and it should be done as soon as possible. In fact, the smaller the charity, the easier it is for them to convert to this new financial reporting framework. Even though charities may choose between adopting the CAS or FRS, I believe the future benefits of adopting the CAS will outweigh the initial teething issues that they will face.
About the Writer:
Suhaimi Salleh is the CEO of SSA Consulting Group and Senior Partner of Suhaimi Salleh & Associates. He is also a member of the Charity Council, representing the people sector.
1The CAS was launched in June 2011. Charities and Institutions of a Public Character (IPCs) which are companies as well as large non-company IPCs may choose to comply with the CAS or FRS for accounts beginning on or after 1 July 2011. Other IPCs and charities that require external audit can opt to comply with the CAS or FRS for accounts beginning on or after 1 January 2015. Charities that have significant investment in subsidiaries, associates or joint ventures, have no choice but to comply with the FRS.
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