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Comments from ACCA
March 2003

The Association of Chartered Certified Accountants is pleased to have this opportunity to comment on the above draft Statement of Recommended Practice (SORP).

ACCA believes that the SORP should be substantially redrafted. At present, too much of the current draft is simply a précis of existing financial reporting standards. In our view this represents neither an adequate summary of those standards, nor is it material which helps their application in the particular context of the institutions involved. Where no particular further education considerations arise from a standard then no more need be said. In fact it is best that no more is said, as gross simplifications can be misleading. As just one example from many, paragraphs 101 to 103 on FRS10 give no extra information than the standard itself and paragraph 103 fails to communicate that internally generated intangibles (which might well be applicable to institutions) cannot generally be capitalised at all.

The SORP should state more prominently that financial reporting standards should be followed. This statement is not made until paragraph 67.

ACCA believes that there are areas where the SORP should have provided extra guidance over and above that given in the standards, but has failed to do so. We consider that the following matters deserve more in-depth treatment:

• heritage assets and those of historic significance

• research and development, the associated grants (which may not come from government) and any intangible assets that may be developed as a result

• donations other than endowments

• pension costs, where a complicated position is alluded to in paragraph 120, but is not elaborated. No guidance is given on which multi-employer schemes should be treated as defined contribution schemes, for example. The full application of FRS17 (incorporation of the numbers into the accounts) is optional under the transitional arrangements, and if the SORP intends to recommend that option is not to be taken up, then it should say so more clearly

• impairment of assets where income generation may not be the primary objective of the institution

• the contents of a directors� report or equivalent document in contrast to other SORPs, for example those for charities or Registered Social Landlords

• related party definitions (see our point below).

In terms of general presentation, it would have been helpful if the model set of financial statements could have included the notes to the accounts.

(a) Current asset investments

Paragraphs 23 and 52 require that land held for investment purposes should be shown as a current asset. This is not always appropriate.

It does not seem very logical to us for investments held as current assets to be at the lower of cost or market value (paragraph 33) when fixed asset investments are at market value. The classification as fixed or current is one of intent and therefore inherently subjective. Subjectivity may reduce comparability between the financial reports of different institutions. Current assets are commonly held for realisation and so market values would seem more relevant than in the case of fixed assets.

(b) Financial instruments

FRS13 encourages unlisted entities to make disclosures about financial instruments, but only makes them compulsory for listed entities. The SORP (paragraph 113) should make a clear recommendation to institutions on this option, given that some may have significant financial assets and liabilities.

(c) Related party transactions

The material on related parties should be expanded. Related parties should be defined more specifically in the context of these institutions. Where FRS8 refers to directors and key management, the SORP should clarify the equivalent in higher and further education. The examples in paragraphs 96 (a) and (b) may not be appropriate, as they imply that related parties could include institutions which share "directors" in common. This would not be consistent with FRS8 paragraph 14(c).

Paragraph 29�s first reference to FRS11 should be a reference to FRS15.

In paragraph 63 "realistic" should be replaced by "material".

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