Income – to defer or not to defer?
June 30, 2015
Welcome to our series on SORP 2015 where the at Chiks will bring you bite size guidance on the changes that SORP 2015 will bring to your organisation.
Income is the inflow of economic benefits to a charity from the activities that it undertakes.
Many charity’s struggle with whether or not the income they receive should be deferred or recognised in full in the period in which it was received.
Income SHOULD be deferred:
1. Where terms and conditions have not been met or an uncertainty exists as to whether the terms and conditions can be met. Where this is the case the income received should not be recognised but deferred and recognised as a liability in the charity’s balance sheet.
2. Where a grant is subject to performance related conditions it should be recognised as deferred income and released to income in the reporting period in which the performance related conditions or other conditions have been met.
3. Where a grant or donation has been received but has not been recognised due to the conditions applying to the gift not being wholly within the control of the charity, it should be disclosed as a contingent asset if receipt of the grant or donation is probable once the conditions have been met.
Income should NOT be deferred:
1. Where there is sufficient evidence that the terms and conditions have been or will be met, where this is the case the income must be recognised. Submitting accounts, a certificate of expenditure or administrative requirements would not prevent the income being recognised.
2. Where donations or grant income are received with no conditions attached to them, the income should not be deferred even if the income is received in advance of any expenditure being incurred.
3. If an underspend on a grant received is likely to occur, the full amount of income should be recognised and a liability only recognised when repayment of the underspend becomes probable.
If you require any assistance or further information on any of the areas covered in this article or our SORP2015 bite sized guidance series, please contact a member of our .