Treatment of the Coronavirus Job Retention Scheme in statutory accounts

We have already audited some clients with late 2020 year ends and a common theme I have begun to see is that charities who have benefitted from the scheme have either been netting these funds against wages or salaries or including them as income from charitable activities.

I can see the logic of both, but is this in-line with the accounting principles set out under UK GAAP and the Charities SORP?

The answer is no.

Income recognition

One of the pervasive principles of FRS 102 is that income and expenditure shall not be offset (unless required or permitted by an FRS – which is not the case here).  

Monies received in respect of the Coronavirus Job Retention Scheme constitute a grant to the charity by the government. Depending on the nature of the income usually received by your charity, you may need to revisit your accounting policies to ensure that your statutory accounts disclose a policy for the recognition of grants.  

Most charities who already receive grant income and have an established accounting policy should simply review to ensure that it continues to be accurate.

The most sensible place to disclose the grant in your charity’s accounts would be under the heading of “Donations and legacies” in the income section of the Statement of Financial Activities (SOFA) and as a separate line item in the supporting note.  

The reasoning for including it as its own separate line item rather than aggregating it with other grants received by the charity are threefold: 

1. the nature of the income would be considered to exceptional to the normal circumstances of the charity; 
2. in addition to the above, any amounts received are likely to be material; 
3. giving its own separate line item will add transparency and not cloud comparability for the users of the accounts.

Specifics for government grants

Even if a charity is in the habit of receiving grants, many may not usually receive them directly from the government and there are some specific reporting requirements set out in the Charities SORP (FRS 102) (second edition). Module 5, para 5.58 requires that when a charity is in receipt of government grants, they must also disclose:

• the nature and amounts of government grants recognised in the accounts,
• unfulfilled conditions and other contingencies attaching to grants that have been recognised in income; and
• an indication of other forms of government assistance from which the charity has directly benefitted.

Unrestricted vs restricted

So now you have ensured that the grant has been classified correctly in the statutory accounts, what about the fund accounting?

The basic principles set out in the SORP module “Fund Accounting” still apply as they do to all other items of income and expenditure.

On initial glance, it would seem obvious that the grant should be treated as restricted. However, if you apply the essence of the SORP more carefully to the substance of the transaction, you will see that the grant should be treated as unrestricted. Why? Because the grant claim is made and paid in arrears to compensate for wages costs already incurred by the charity whereas restricted funds are monies received and yet to be spent (on the specific purpose it is intended for).

In summary:

When accounting for Coronavirus Job Retention Scheme grants:

• do not offset income and expenditure
• treat as unrestricted
• if material, disclose separately to aid transparency for the users of the accounts
• check your accounting policies
• have the other SORP disclosure requirements regarding government grants been made?

Tracey Moore is charities and NFP director at UHY Hacker Young. The original version of this blog can be found by clicking here.