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The Regulatory Framework of Charities (Part 2)

By ISCA (republished) On 08 Sep 2016

This article was first published in the IS Chartered Accountant, September 2016. Re-published with permission from the Institute of Singapore Chartered Accountants (ISCA).

Charities rely largely on donations and grants from individuals, government entities and other organisations to carry out their charitable activities. They are expected to utilise their funding responsibly and in an accountable manner. In the first part of the article “The Regulatory Framework of Charities” (published in the July issue of IS Chartered Accountant journal), we provided an overview of the regulatory framework which governs the operations of Charities and promote accountability in the sector – such as the Charities Act and Code of Governance for Charities and Institutions of a Public Character (IPC). Additionally, a common mechanism to promote accountability is via the formal financial reporting process. In this second part of the article, we extend our discussion to examine the accounting standards tailored for the sector – more specifically, the Charities Accounting Standard (CAS).


Many countries, including Singapore, have adopted the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB) to regulate financial reporting of Charities.[1] However, one common argument against IFRS is that the standards have been designed for the for-profit sector, and hence may need to undergo adjustment to suit non-profit entities.[2] In view of this, the Financial Accounting Standards Board (FASB) in the US had, in 2015, proposed sector-specific reporting standards for non-profit entities. According to Lee Klumpp, a member of the FASB’s Not-for-Profit Advisory Committee, a fundamental goal of the proposal is to “make it easier for non-profit organisations to tell their stories and, at the same time, the people that rely on this information will obtain more clarity about the nature of the financial figures – how they were developed and what they really mean.” [3]

It has also been recognised that a “one-size-fits-all” financial reporting approach may not be suitable for Charities, given their varied nature of operations and differing sizes. Thus, tiered or modified financial reporting frameworks have been introduced elsewhere to facilitate simpler and more relevant reporting.[4] For instance, New Zealand adopts a four-tier system that makes available simpler financial reporting frameworks for smaller or eligible Charities. In the UK, Charities can opt for the Financial Reporting Standard for Smaller Entities (FRSSE) if they meet the necessary criteria. Similarly, Charities in Singapore can opt to adopt the CAS.


Introduced in 2011, the CAS is a simpler financial reporting framework that is tailored to the needs of Charities. It was developed based on the requirements of the FRS, taking into account the context and circumstances relevant to the Charity sector. The CAS serves as an alternative set of accounting standards to the FRS, which also regulates the preparation and presentation of financial statements for eligible Charities.[5] It aims to better meet the needs of the Charity sector by making it easier for Charities to comply with the financial reporting requirements and provide information that is fit-for-purpose to stakeholders.

The objectives of the CAS are to:

  • Improve the quality of financial reporting environment of Charities;
  • Enhance the relevance, comparability and understandability of information presented in the financial statements of Charities;
  • Assist those who are responsible for the preparation of the financial statements of Charities, and
  • Reduce diversity in accounting practice and presentation across Charities.


In essence, the CAS captures the relevant requirements that are largely applicable to the local charity sector and simplifies the reporting and disclosure processes. For instance, the CAS excludes some FRS requirements that are not applicable to Charities. It also prescribes how Charities should present their Statement of Financial Activities to give donors, beneficiaries as well as the general public greater insights as to how they receive and apply their income to meet their charitable objectives. Table 1 highlights some key differences between the CAS and the FRS.


Woo E-Sah, Audit Partner of RSM Chio Lim LLP, is of the opinion that the CAS provides a simpler reporting framework for Charities in terms of recognition, measurement, disclosure and presentation. In the Box Story, she highlights some main areas that have been simplified.




Although the CAS is intended to provide a simpler financial reporting framework for Charities, the CAS has yet to be widely adopted. Based on submitted financial statements in 2014 and 2015, only approximately 40% of the Charities have adopted CAS. Ms Woo believes that it could be beneficial for all Charities to adhere to the CAS. She says, "By making the CAS mandatory for all Charities, there will not be a mismatch for Charities adopting the FRS or the CAS on the presentation of financial statements and recognition of grants and donations. It also enhances comparability among Charities if similar standards are adopted."

Table 2 summarises the reasons provided by Charities, in a 2015 survey conducted during the inaugural townhall meeting organized by the Centre for Social Development Asia and the Charity Council, for the low uptake of CAS.


Some Charities also harbour misunderstandings towards the CAS, thinking that the CAS is of a “lower” standard than the FRS and thus, do not see the appeal of the CAS. In response, Gerard Ee, President of ISCA and Chairman of the Charity Council, comments that this perception is incorrect. He explains that the CAS is simply a subset of the FRS with less extensive reporting requirements and as such, can benefit smaller Charities. Hence, he concludes, “It is a question of need rather than a question of higher order”.

Ms Woo also addresses the technical misconception about fund accounting. She explains that contrary to what some may believe, the disclosure of either income and expenditure statement or balance sheet by fund categories does not only apply to Charities adopting the CAS. Fund accounting remains the key feature of Charity accounting and is not in conflict with the FRS[7]. In reality, Charities adopting the FRS are encouraged to adopt the presentation format of the SOFA as required by the CAS. 

To further assist Charities, Ms Woo believes that accountants or auditors should also come forward and help Charities understand the similarities and differences between the FRS and CAS, and thereby make an informed decision in their choice.


Charities are often volunteer-driven organisations, made up of committed individuals working for a cause. They are stewards of the public’s trust, and are held to a high standard of integrity that they will use donations as promised. A strong regulatory framework will help to promote greater accountability of the Charity sector. To further earn the public trust, an organisation could also look into improving its organisational governance – through the development of a framework and guidance on risk management, internal control and fraud deterrence. However, as more than half of Charities in Singapore are small in terms of their income size, many may not have formal hierarchies of management. Therefore, accountants could play an important role in helping these Charities develop a corporate-type management structure, and institute financial management practices that could be systematically used to prevent misuse and misappropriation of assets, such as occurring through theft or embezzlement. We will examine these aspects in the next article.


Dr Isabel Sim is Senior Research Fellow, Department of Social Work, Faculty of Arts and Social Sciences, National University of School (NUS) as well as Director (Projects), Centre for Social Development (Asia). Associate Professor Alfred Loh and Professor Teo Chee Khiang are both from the Department of Accounting, NUS Business School. The writers gratefully acknowledge the contributions of Gong Yuan, Claribel Low and Persa Chowdhury, Research Interns, NUS.


[1] While Singapore has adopted substantially all IFRS issued by the IASB as SFRS, full convergence with IFRS for listed companies will only be achieved for FYs beginning on or after 1 January 2018..

[2] Irvine, H, & Ryan, C. (2013). “Accounting regulation for charities: international responses to IFRS adoption”, Pacific Accounting Review, Vol. 25 Issue 2, 124-144;

[3] Klumpp, L. (2015). “Financial Accounting Standards Board proposes new accounting standards for nonprofits”, Nonprofit Business Advisor, Vol. 2015 Issue 310, 5-8;

[4] Grant Thorton New Zealand. (2015). “New financial reporting requirements: Helping the Not for Profit sector navigate complexity”;

[5] Charities that hold significant investments in any subsidiary, associate or joint venture that is not a charity, however, are unable to adopt the CAS and are required to comply with the FRS.

[6] Adapted from Woo, E-Sah. (2012). ‘Framework for charities’, AB Singapore magazine, Vol 15 Issue 5, 51-54;

[7] Under fund accounting, separate accounts have to be kept to differentiate the movements of restricted, unrestricted and designated funds.