Charities accounting requires charity

Charities in Singapore may choose to adopt either Financial Reporting Standards (FRS) or Charities Accounting Standard (CAS) for their financial reporting.

FRS is the primary accounting standard that most companies in Singapore use. It is based mainly on the International Financial Reporting Standards (IFRS). Other adaptions of FRS apply to small and medium enterprises and statutory boards.

Using FRS as the baseline but adapting it to the needs of the charities sector, the Accounting Standards Council introduced CAS in 2011.

Adoption of CAS

Although CAS was meant to be a simpler and more relevant financial reporting framework, the vast majority of charities still use FRS, according to a study, The Social Service Sector in Singapore by the Centre for Social Development Asia, National University of Singapore in 2015.

The reasons for the low uptake of CAS include: auditors are familiar with FRS, parent organisations use FRS, high administrative cost of transition, and CAS being perceived as being of a lower standard.

To encourage greater take-up, several bodies have organised CAS training, much of it subsidised by funding from the VWOs-Charities Capability Fund (VCF) administered by the National Council of Social Service. However, the education may not lead to greater adoption – perhaps because the more one learns more about it, the conclusion could be that, in its current form, CAS is not necessarily the better option.


The big benefit of CAS is that it is a hugely simplified version of FRS, which currently comprises 41 standards – each of which is a standalone document, usually accompanied by other documents (Interpretation, Illustrative Example and Implementation Guidance). CAS reduces the 107 documents in the current FRS to a single document that comprises less than 7 per cent of the FRS’ total number of pages.

One major change is the way results are presented. CAS replaces FRS’ profit-and-loss and the statement of changes in equity with a statement of financial activities (SOFA).

Charities tend to have different funds (restricted and unrestricted) for different sub-causes. To ensure accountability to donors, CAS requires fund accounting where the income, expenditure and balance for each fund are tracked and reported separately. Using a column for each fund can result in an elongated SOFA, and having the current and previous years on separate pages makes comparisons between years less convenient.

However, charities that adopt FRS can also use fund accounting and the SOFA format. Indeed, the charities regulations emphasise this option (Second Schedule of the Charities (Accounts and Annual Report) Regulations 2011).

CAS also creates new terminologies to describe charity-related activities, which may not be intuitive to the layperson. For example, “voluntary income” is essentially “donations”, and “cost of generating funds” is “fundraising costs”.


Perhaps the most controversial aspect of CAS is its treatment of donations-in-kind.

Para 86 of CAS requires the value of donations-in-kind to be recorded as income. Para 87 then specifies how assets that are gifts-in-kind for the charity’s own internal use, distributed to beneficiaries, or converted to cash should be accounted.

However, the standard does not mention sponsorships-in-kind, the goods and services that charities habitually use to survive and power their fundraising and charitable activities.

Purists have interpreted the ambit of Para 86 to include sponsorships-in-kind, insisting that these must also be accounted for by reflecting their value in the income and expenditure section. But this creates other issues.

Apart from the near-impossible task of capturing and valuing every sponsorship-in-kind, such a position does not reflect how charities function. For starters, sponsorships-in-kind are usually of the take-it-or-leave-it variety. For example, many charity events (dinners, golf tournaments, etc) are held at (premium) venues because they are specifically sponsored. To account for such venues as if the charity actually receives a cash donation and then independently decided to apply the cash to purchase the goods or service (provided in-kind by the donor) is not an accurate representation.

While the two accounting entries of income and expenditure cancel each other out, the purist position means that a charity’s absolute costs and the fundraising ratio are inflated. As most charities work hard to keep costs down by getting sponsorships-in-kind, inflating their costs is an undue penalty, especially for charities that are successful at getting good sponsorships that are higher in value.

All charities and Institutions of a Public Character (IPC) are expected to keep their fundraising efficiency ratio below 30 per cent, commonly known as the 30/70 rule. The Commissioner of Charities has since clarified that in computing the fundraising ratio, sponsorships-in-kind need not be included unless the donor seeks a tax deduction.

In practice, most charities have simply ignored sponsorships-in-kind in their financial statements, and auditors have passed them as being in compliance with the accounting standards. However, this lack of clarity has resulted in many unnecessary debates in audit committee and board meetings.

This also explains why some charities have simply chosen to bypass the debate by sticking with FRS, where there is no need to account for sponsorships-in-kind, a practice that is also rife in the commercial world.

Updating the standards

The lack of clarity of CAS arises partly because there has not been a mechanism or concerted effort to receive feedback and update the standards.

Every year, there are several new releases of FRS standards, interpretations and guidance, which are issued after an extensive process of analysis, feedback and consultations. In contrast, CAS has not been updated since it was introduced eight years ago. It is time to do so.

Meanwhile, it does make good sense for a charity to continue applying FRS.



This article was first published in the SID Directors Bulletin 2019 Quarter 4 issue under the column “Counting Beans”.