f. Accounting for fund balances Fund balances are identified in three categories: i) Unrestricted funds are those that are available to be spent on any of Plan’s activities. Accounting reserves arise from the accounting treatment for certain assets and liabilities, specifically the net investment of funds in property, plant and equipment and intangible assets and the unrealised gains/ (losses) on investments available for sale. A prefinancing reserve is held by PI Inc for liquidity purposes, equivalent to one month’s average expenditure of designated funds (excluding Gifts in Kind). Funds which are available for future expenditure include: • the operating reserves of the National Organisations • the child sponsorship and unrestricted funding working capital reserve in PI Inc, which is held for liquidity purposes and is equivalent to the higher of one month’s average expenditure of child sponsorship and unrestricted funding and funds received by PI Inc from National Organisations awaiting designation • the contingency reserve in PI Inc which is also equivalent to one month’s average expenditure of child sponsorship and unrestricted funding • free reserves, meaning funds in excess of the total reserves target level which comprises the sum of the specific reserves. Free reserves include an investment reserve for fundraising, programme development and organisational change which at 30 June 2012 was €12m and at 30 June 2013 was €6m. PI Inc has a contingency reserve so that in the event of certain operational and financial risks crystallising, Plan would be able to: • complete programme work that is already underway • safeguard staff and secure assets in the event of civil disorder or war • adjust spending plans in a controlled manner • restructure field and central operations. ii) Temporarily restricted funds comprise: • advance payments by sponsors • unspent funds that have been restricted to specific purposes by donors • contributions receivable at the year-end, including amounts receivable from legacies and trusts, but excluding any such amounts which are designated as permanently restricted. iii) Permanently restricted funds are those that will not become unrestricted. They include endowment funds restricted by donors and statutory funds that are required in accordance with the statutes of the countries in which some NOs operate. The PI Inc reserves specified above are defined by the PI Inc reserves policy, which was revised by the International Board in June 2013. The changes made to the reserves policy for PI Inc were to: • reduce the prefinancing reserve from three months’ designated funding expenditure to one • merge the working capital for disasters with other programme, fundraising and operating working capital • set a target level for reserves, being the sum of specific PI Inc reserves described above, excluding free reserves • provide for free reserves, being amounts in excess of the total target level for reserves, to be held and utilised for investment in programme development, fundraising and organisational change.
g. Operating leases Operating leases, being those leases which do not transfer substantially all the risks and rewards of ownership of the related asset, are included in expenditure on a straight-line basis over the lease term. Lease incentives are recognised on a straight line basis over the life of the lease.
h. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and deposits held with banks which have a maturity date of less than 3 months from the date the deposit was made. They are carried in the combined statement of financial position at cost. For the purposes of the combined statement of cash flows, cash and cash equivalents are stated net of bank overdrafts. Plan International Worldwide Combined Financial Statements for the year ended 30 June 2013
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