Towards a new Charities SORP
As work is poised to commence on drafting the next edition of the Charities Statement of Recommended Practice (SORP) (FRS 102), Christine Scott reflects on developments so far
A revised Charities SORP (Financial Reporting Standard 102) is expected to apply to reporting periods commencing on or after 1 January 2024, just short of two years from now.
Since this article was published the FRC has announced that amendments to FRS 102 arising from the current periodic review will not be effective before 1 January 2025. Information on how this may impact on the timing of the revised Charities SORP (FRC 102) will be reported in due course.
The Charities SORP (FRS 102) was first implemented on 1 January 2015 and was subsequently updated from 1 January 2019 to include clarifying amendments and amendments arising from changes to FRS 102 from the UK Financial Reporting Council’s (FRC’s) first periodic review of the new UK Generally Accepted Accounting Practice (GAAP).
This time amendments to the Charities SORP (FRS 102) will be determined following a new process, the Charities SORP development process, in addition to reflecting changes to FRS 102 arising from the FRC’s current on-going periodic review of UK GAAP.
The Charities SORP development process
The Charities SORP development process was established to address recommendations made in a governance review, which concluded in 2019. The governance review’s recommendations emphasised the need for greater recognition of the needs of smaller charities and for broader engagement with different stakeholder groups in developing the Charities SORP.
Six stakeholder groups, known as ‘strands’, were established in February 2020. Since then, the strands have been working with the UK charities regulators, which together form the SORP-making body (SMB), and the Charities SORP Committee, which prepares the Charities SORP on behalf of the SMB.
The six strands are as follows:
- Smaller charities and independent examiners;
- Professional and technical (members of this strand are professionally qualified accountants who specialise in charities, mainly charity audit);
- Larger charities;
- Major funders, donors, government and public bodies;
- Academics, regulators and proxies for the public interest.
After an initial exploration by the strands of changes to the Charities SORP that may be desirable in view of experience and wider developments in corporate reporting, the Charities SORP Committee identified seventeen topics for an in-depth review by the strands and invited them to make recommendations for change. The strands’ consideration of these topics came to an end in January this year.
Key topics considered in depth by the strands include:
- A more tiered approach to concessions for charities of different sizes;
- Charity reserves;
- Accounting for donated goods and services;
- Grant accounting;
- Income recognition;
- Impact reporting;
- Sustainability reporting.
Briefing papers prepared for the strands on all seventeen topics are available on the Charities SORP microsite. For those interested in the Charities SORP Committee’s deliberations on each of these topics, following feedback from the strands, SORP Committee minutes are publicly available.
During 2022, work will commence on preparing a consultation draft of the next edition of the Charities SORP with a view to conducting a public consultation exercise during the early months of 2023.
In January 2022, the SMB’s aims and principles for drafting the next edition of the Charities SORP (FRS 102) were published.
The four aims are:
- To address the needs of the main users of a charity’s annual report and financial statements who do not have the power to require specific information of a charity.
- To comply with FRC requirements that SORPs should be developed in line with current FRC standards and best practice.
- To promote consistency across the charity sector by recommending a preferred treatment, approach or methodology.
- To keep recommendations relevant to the socioeconomic context in which charities operate by retaining the advice of an expert SORP Committee, convening a SORP engagement process and by holding consultation exercises on areas for changes to the SORP.
These four aims are supported by eight principles, including the preparation of a Charities SORP that meets the needs of those who prepare trustees’ annual reports and financial statements, as well as those who use them.
Following an initial call for input, the FRC plans to publish an exposure draft of FRS 102 for public consultation during 2022. Final changes to FRS 102 relevant to the content of the Charities SORP will need to be accommodated in the final revised edition of the Charities SORP (FRS 102).
The Charities SMB responded to the FRC’s call for input with two submissions setting out detailed recommendations, including recommendations aimed at making some of the concessions available to commercial companies available to charities, reducing the need for comparatives in some instances and simplifying the requirements for accounting for donated goods and services. The submissions are available on the Charities SORP microsite.
Christine Scott represents ICAS on the professional and technical strand, which consists of two groups (A and B).She is convenor of Group B.