FOR IMMEDIATE RELEASE

22 July 2005

MEDIA RELEASE

ICPAS INVITES PUBLIC COMMENTS ON EXPOSURE DRAFT OF REVISED STATEMENT OF RECOMMENDED ACCOUNTING PRACTICE 6

ACCOUNTING AND REPORTING BY CHARITIES (RAP 6)

The Institute of Certified Public Accountants of Singapore (ICPAS) recognises the importance of corporate governance and internal control systems in organisations, and advocates the adoption of best practices in these areas. To address the issue of accounting guidelines for charities, ICPAS issued an Exposure Draft of Revised Statement of Recommended Accounting Practice 6 Accounting and Reporting by Charities (RAP 6) on 1 June 2005, after close consultation with the Council on Governance of Institutions of a Public Character (CGIPCs) Accounting and Investments Workgroup. This was in response to the Government’s acceptance of the recommendations submitted by the CGIPCs in May 2005.

In view of the public interest in the recent NKF saga, the Institute would like to solicit comments from members of the public on the exposure draft. ICPAS would also like to encourage charities to adopt the practices proposed by the Institute to move towards a disclosure-based accounting framework and provide greater transparency to instil public trust and confidence in charities.

About the Exposure Draft

The proposed Exposure Draft (ED) is based on the Statement of Recommended Practice (SORP) on Accounting and Reporting by Charities issued by the Charity Commission for England and Wales.

It sets out the Institute’s recommendations on the way in which a charity should account for and report on the resources entrusted to it and the activities in which it undertakes. It addresses various disclosure issues for charities, for example, on

Related Party Transactions, Trustee / Office Bearer Remuneration and Benefits, Trustee / Office Bearer Expenses, Cost of Non-Audit Services and Analysis of the Net Movement in Funds. The intention is that these recommendations will reduce diversity in accounting practice and presentation. In all but exceptional circumstances, charities preparing accrual accounts should follow this statement in order for their accounts to give a true and fair view. Accounting polices should generally comply with the measurement principles of the Financial Reporting Standards (FRSs). Appropriate disclosure of the accounting policies should be made in the notes to the financial statements.

This statement is intended to be applicable to all charities in Singapore, regardless of their constitution, size or complexity. It is recognised that some of the recommendations may be inapplicable to some charities because of the nature of the charity or the limited classes or size of the transactions or assets involved. However, the full recommendations are given, leaving discretion to the trustees / office bearers of each charity to apply them according to the character of the charity and the significance of the figures concerned.

Charities with gross annual income or expenditure of $1,000,000 or less should comply with this statement while those with gross annual income or expenditure of more than $1,000,000 should additionally refer to the detailed guidance contained in Appendix 5 of the draft RAP. Charitable entities, projects, activities or events with a gross income or expenditure of $250,000 or less should, as a minimum, prepare a statement of income and expenditure, which is illustrated in Appendix 4 of the draft RAP.

The main obligation of trustees / office bearers in preparing accounts and reports is to give a true and fair view of the charity’s incoming resources and application of resources during the financial period and of its state of affairs at the end of the period. To achieve this, the trustees’ / office bearers’ judgement may dictate the disclosure of more information than specifically recommended in this statement. Occasionally, trustees / office bearers may find that following a recommendation is incompatible with the obligation to give a true and fair view. Subject to concurrence with their external auditors, they may then use the alternative accounting treatment, which gives a true and fair view, and disclose any departure from the recommendations and the reasons for it. A departure from the statement is not justified simply because it gives the reader a more appealing picture of the financial position or results of the charity.

A charity shall apply this statement for annual periods beginning on or after 1 July 2005. Earlier application is encouraged. If a charity applies this statement for an earlier period, it shall disclose that fact. A charity need not apply the requirements in this statement to comparative information that relates to annual periods beginning before 1 July 2005 or for a prior period for which it was not required if it is impracticable to do so. In such a case, the charity shall disclose that fact.

Although the provisions for this statement are not mandatory, charities falling within their scope are encouraged to comply with the recommendations set out in this statement. The provisions of this statement need not apply to items that are not material.

Extracts from RAP 6

The full exposure draft is attached for your reference. An extract of the salient points in the exposure draft include:

Accounts Structure

Charity accounts should comprise:

(a) A Statement of Financial Activities for the accounting period that shows all incoming resources and all resources expended by it and reconciles all changes in its funds. The statement should consist of a single set of accounting statements and be presented in columnar form if the charity operates more than one class of fund;

(b) An income and expenditure account where this is a legal requirement. This applies to charitable companies. In certain circumstances the Statement of Financial Activities will also meet the legal requirements for an Income and Expenditure Account. Where the two statements are combined this should be identified in the heading of the statement;

(c) A Balance Sheet that shows the recognised assets, the liabilities and the different categories of funds of the charities;

(d) A Cash-flow Statement, in accordance with Financial Reporting Standard (FRS) 7 Cash Flow Statement; and

(e) Notes explaining the accounting policies adopted and other notes, which explain or expand upon the information contained in the accounting statements referred to above or which provide further useful information. This will include notes analysing the figures in the accounts and explaining the relationships between them.

Content of Annual Report

The report should provide the following reference and administrative information about the charity, its trustees and advisers:

(a) The name of the charity, which in the case of a registered charity means the name by which it is registered. Any other name by which a charity makes itself known should also be provided;

(b) The charity registration number and, if applicable, the company registration number;

(d) The names of all of those who were the charity’s trustees and office bearers on the date the report was approved; where the charity trustees are incorporated this should include the name of the corporate body;

(e) The name of any other persons who served as charity trustees or custodian trustees and office bearers in the financial year in question; where the charity trustee is a company or corporate body, the names of its current directors or other persons managing it;

(f) The name of any Chief Executive Officer or other senior staff member(s) to whom day to day management of the charity is delegated by the charity trustees;

(g) The names and addresses of any other relevant organisations or persons. This should include the names and addresses of those acting as bankers, solicitors, auditors and investment or other principal advisers.

Structure, Governance and Management

The report should provide the reader with an understanding of how the charity is constituted, how its trustees are recruited and trained and how the charity’s decision-making processes operate. In particular, the report should explain:

(a) The nature of the governing document (e.g. trust deed; memorandum and articles of association; constitution; bye-laws; etc.) and how the charity is (or its trustees are) constituted (e.g. limited; unincorporated association; trustees incorporated as a body; etc.).

(b) The methods adopted for the recruitment and appointment of new trustees, including details of any constitutional provisions relating to appointments, for example, election to post. Where any other person or body external to the charity is entitled to appoint one or more of the charity trustees this should be explained together with the name of that person or body.

(d) The organisational structure of the charity and how decisions are made. For example, which types of decisions are taken by the trustees / office bearers and which are delegated to staff.

(e) Where the charity is part of a wider network then the relationship involved should also be explained where this impacts on the operating policies adopted by the charity.

(f) The relationships between the charity and related parties and with any other charities and organisations with which it co-operates in the pursuit of its charitable objectives.

Objectives & Activities

The report should help the reader understand the charity’s objectives, strategies and activities undertaken to achieve them. Where activities are undertaken through subsidiary undertakings, details should be provided in the report. In particular, the report should provide:

(a) A summary of the objects of the charity as set out in its governing document.

(b) An explanation of the charity’s aims including the changes or differences it seeks to make through its activities.

(d) An explanation of the charity’s strategies for achieving its stated objectives.

(e) Details of significant activities (including significant programmes, projects, or services provided) that contribute to the achievement of the stated objectives.

Achievements & Performance

The report should contain information that enables the readers to understand and assess the achievements of the charity and its subsidiary undertakings in the year. It should provide a fair review of its performance against objectives that have been set. The report is likely to provide both qualitative and quantitative information that helps explain achievement and performance. It will often be helpful to identify any indicators, milestones and benchmarks against which the achievement of objectives is assessed by the charity. In particular, the report should contain:

(a) A review of charitable activities undertaken that explains the performance achieved against objectives set. Where qualitative or quantitative information is used to assess the outcome of activities, a summary of the measures or indicators used to assess achievement should be included.

(b) Where material fundraising activities are undertaken, details of the performance achieved against fundraising objectives set, commenting on any significant expenditure for future income generation and explaining the effect on the current period’s fundraising return and anticipated income generation in future periods.

(c) Where material investments are held, details of the investment performance achieved against the investment objectives set.

(d) Comment on those factors within and outside the charity’s control which are relevant to the achievement of its objectives; these might include relationship with employees, users, beneficiaries, donors and the charity’s position in the wider community.

General Principles on Accounting Standards

In meeting the obligation to prepare accounts showing a true and fair view, accounts should follow the standards and principles issued by the Council on Corporate Disclosure and Governance. This statement provides guidance and recommendations that supplement interpretation of the most suitable application of accounting standards for charities in the light of the special factors prevailing or transactions undertaken with the charity sector, but it is supplementary to those standards and, as with the law, does not seek to repeat all of their requirements (see Appendix 2).

The Singapore Financial Reporting Standards provide the financial reporting framework under which this statement has been developed. In Singapore, compliance with companies’ legislation presently requires compliance with Singapore Financial Reporting Standards.

Other Matters to be Covered in the Notes of Accounts

Related Party Transactions

Only material transactions need to be disclosed in the notes to the accounts. Material transactions with related parties should be disclosed irrespective of whether or not they are undertaken on an arm’s length basis.

The required disclosure is as follows:

(a) A description of the relationship between the parties (including the interest of the related party or parties in the transaction);

(b) A description of the transaction;

(d) Outstanding balances with related parties at the balance sheet date and any provisions for doubtful debts from such persons;

(e) Any amounts written off from such balances during the accounting year; and

(f) Any other elements of the transactions, which are necessary for the understanding of the financial statements.

The disclosure can be given in aggregate for similar transactions and type of related party, unless disclosure of an individual transaction or connected transactions:

(a) Is necessary for an understanding of the impact of the transactions on the accounts of the charity; or

(b) Is a legal requirement, for example, in relation to trustee remuneration?

Trustee / Office Bearer Remuneration and Benefits

Unlike in the case of the directors of commercial companies, it is not the normal practice for charity trustees / office bearers, or people connected with them, to receive remuneration, or other benefits, from the charities for which they are responsible, or from institutions connected with those charities. Detailed disclosures of remuneration and benefits are therefore required and should be made in accordance with relevant FRSs and in appropriate bands.

Trustee / Office Bearer Expenses

Where a charity has met individual expenses incurred by trustees / office bearers for services provided to the charity, either by reimbursement of the trustee / office bearer or by providing the trustee / office bearer with an allowance or by direct payment to a third party, the aggregate amount of those expenses should be disclosed in a note to the accounts. The note should also indicate the nature of the expenses (e.g. travel, subsistence, entertainment, etc.) and the number of trustees / office bearers involved.

Disclosure of Accounting Policies

Charity accounts should include notes on the accounting policies chosen. These should be the most appropriate in the particular circumstances of each charity for the purpose of giving a true and fair view. The policies should be consistent with this RAP, FRSs and relevant legislations.

If the accounts depart from FRSs in any material respect, with the concurrence of the external auditors this should be stated in the accounting policies giving the reason and justification for the departure and the financial impact.

Accounting & Reporting for Charities with Gross Annual Income or Expenditure of More than $1,000,000

Financial Review

The Charity’s Annual Report should contain a review of the financial position of the charity and its subsidiaries and a statement of the principal financial policies adopted in the year. In particular, the report should explain the charity’s:

(a) Policy on reserves stating the level of reserves held and why they are held. Where material funds have been designated, the reserves policy statement should quantify and explain the purpose of the designations and, where set aside for future expenditure, the likely timing of that expenditure.

(b) Principal funding sources, including any borrowings, and how expenditure in the year under review has supported the key objectives of the charity.

(c) Where any material fund is in deficit, the circumstances giving rise to the deficit and details of the steps being taken to eliminate the deficit.

(d) Where material investments are held, the investment policy and objectives, including any ethical policy adopted in the selection of investments.

The details of the guidelines for charities with gross annual income or expenditure of more than $1,000,000 can be found in Appendix 5 of the draft RAP.

Comment Period

Members of the public who wish to give their comments on the exposure draft are encouraged to do so via email to technical@icpas.org.sg by Monday, 1 August 2005. A copy of RAP 6 can be downloaded from the ICPAS website at www.icpas.org.sg/article_det.asp?articleid=922&ps=7. This would be an opportunity for the public to voice their opinion on corporate governance, disclosure and transparency issues of charities before the exposure draft is recommended as an accounting practice.

About ICPAS

The Institute of Certified Public Accountants of Singapore (ICPAS) is the national organisation for the accountancy profession in Singapore. With a membership of more than 17,000 members, ICPAS’ mission is to develop, support and enhance the integrity, status and interests of the accountancy profession in Singapore.

For further information, please call:

Ms Rosalind Wong

Institute of Certified Public Accountants of Singapore

Tel: 6749 8060 ext. 813

Fax: 6749 8061