Hello everyone - I do the books for an arts CIC and, since we are small, I also produce and file the statutory accounts. Much of our funding is from project-based grants from non-government organisations and we are often asked by the grant-giving body to show their grant and related expenditure as a restricted fund in our statutory accounts. Since we are not a registered charity but are a company limited by guarantee, as I understand it, the accounting term "restricted fund" does not apply. Instead, I have to follow the Financial Reporting Standard for Smaller Entities 2008, soon to be replaced with 2015 version which dictates the format for the P&L and Balance Sheet and doesn't seem to allow for showing restricted funds. Has anyone else come across this problem and can anyone advise how I can present our statutory accounts to satisfy both the requirements of our grant donors to show their grant as a restricted fund and the Financial Reporting Standards for limited companies ? Many thanks.
Hi, although restricted funding doesn't apply to CIC accounts formats, you can create additional/different types of reserves, so as well as the profit and loss reserve you can have a reserve for a specific grant (or a reserve for all restricted funds and then prepare the note as described below). This is the way we present accounts where grants need to be shown separately, and then in the notes we provide a breakdown of the bal b/fwd, income, expenditure and bal c/fwd for each restricted fund. The alternative is to present the accounts in charity format, if that gives a better presentation of the organisation (and then to explain this in the notes), as if the organisation operates more like a charity then it would be providing a truer picture to present in that format. Hope this helps.
Dear Heidi and Dick, Thank you very much for your replies which are very helpful but I'm afraid prompt more questions :
a) Re Heidi's first option of showing a separate reserve(s) for the grant, I didn't explain properly that since the grants we get are performance-related and often span more than one financial year, I have been carrying forward the surplus on the grant at the end of Year 1 as deferred income. This is my interpretation of Clauses 6.54 to 6.57 of FRSSE 2015 which applies to Government grants but I think is recommended as best practice for other grants such as the Arts Council. This says that "grants shall be recognised in the P&L a/c so as to match them with the expenditure towards which they are intended to contribute ". I have interpreted this to mean that the unspent balance in year 1 should go to Deferred Income. I've just had a look at the Charities SORP 2015 and that also says performance-related grants should be deferred in line with performance. Do you think I'm correct ? If so, Heidi's 1st option can't apply.
b) Re Heidi's 2nd option of using charity format, my client is a Not for Profit organisation so it would perhaps provide a truer pricture. I presume Heidi you are suggesting 2 columns in the P&L ie. one Unrestricted and the other Restricted but is this allowed under FRSSE ? If so, this would certainly allow the donors to see the grant income recognised in the year along with matched expenditure but since I'm only recognising income as we incur expenditure, and since we always spend all of the grant, the Restricted Reserves balance would always be zero since the unspent portion of the grant at the end of Year 1 would be in Deferred Income.
c) I understand Dick's work-around but I'm not keen on having two sets of accounts. I can see problems if funders download our accounts from Companies House and they don't match those we have sent them. Plus it seems like extra work !
d) I'm coming to the conclusion that the only way I can disclose the grant figs is by way of a note to the accounts which gives a breakdown of each performance-related grant with the Deferred Grant bal B/f, Grant Received in year, Grant Expended in Year, Deferred Grant C/f. Do you agree ?
Many thanks in advance for your help
no you would file appropriate accounts including Restricted Funds for Registrar of CICs, but rejig a couple of numbers for HMRC. That is what I do in the circumstances...probably takes 15 minutes more! I feel the most important thing is to produce accounts that are sensible to users rather than primarily satisfying HMRC
anyway good luck
I personally use restricted funds for my CIC's in these circumstances, after having discusiions with the ICAEW. This suits the requirements of funders. However there is a problem with HMRC and in this case I would send adjusted figures replacing the restricted figures with deferred grants
Hi Jenny. I find the funder usually asks for a separate report anyway. But if they want it as part of the accounts you could include it as an extra management page at the back of the accounts. This page can then be excluded when filing with HMRC.