PwC to Charities: Brace Your Balance Sheets to Fend Off Loan Agreements Hitch

Lucas Gilmore, “Big 4″ observer
February 25, 2011 /

The new accounting standards on the audit of charities might jeopardize public benefit entities (PBE) unable to meet loan agreements test as they are required to show updated balance sheets.

The new set of accounting standards released October 2010 by the Accounting Practice Board (APB) on the back of the International Standards on Accounting (ISA) aim to reflect the clarified ISA’s of Ireland and UK, according to Richard Fleck, director of the Financial Reporting Council.

He said the new accounting standards are important for non-profit organizations such as charities since their audits need to be approached differently from that of for-profit entities.

However, PricewaterhouseCoopers has told charitable organizations to be clearer in their balance sheets to avoid arduous loan agreements with lenders.

The accounting firm argued that the new standards on the audit of charities might force them to have second talks with their lending banks with regards to loan agreements taking into consideration the rise in the value of their assets, which would adjust their balance sheets.

The new accounting standards are capable of putting charities at risk if they fail to meet loan agreements requirements, such as the increase in asset values, just because their balance sheets are not up-to-date.

Meanwhile, the Accounting Standards Board is currently working on proposals for the modification of audit standards for charities so their balance sheets could meet loan agreements without having to reflect the rise in asset value.

PwC said charities must also brace themselves for the changes in banking rules that could hamper their loan agreements if left unaddressed.

 

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