Changes to the Charities SORP (FRS 102)
The Charities SORP-making body has published amendments to the Charities SORP (FRS 102).
Changes arising from the Financial Reporting Council’s (FRC's) 2017 triennial review of Financial Reporting Standard (FRS) 102 are the main but not the only reason for the updates. Amendments which clarify existing requirements are also made.
Changes arising from the triennial review are applicable for periods commencing on or after 1 January 2019. However, clarification amendments are applicable to periods commencing on or after 5 October 2018.
The early adoption of changes to the Charities SORP (FRS 102) arising from the triennial review is permitted except where prohibited by regulations or charity or company law, provided the changes are implemented as a package.
For charities registered in Scotland with OSCR, including cross-border charities, the early adoption of amendments to the Charities SORP (FRS 102) arising from the FRC’s triennial review of FRS 102 are not permitted.
The prohibition on early adoption arises from the Charities Accounts (Scotland) Amendment Regulations 2018 (SSI 344 of 2018).
Components of the Charities SORP (FRS 102)
The Charities SORP-making body has not republished the Charities SORP (FRS 102) in full. Amendments to the SORP are made through Update Bulletin 2. This means that in order to comply with the Charities SORP (FRS 102), charities must comply with the following for periods commencing on or after 1 January 2019:
- Charities SORP (FRS 102) (effective 1 January 2015);
- Update Bulletin 1; and
- Update Bulletin 2.
These documents are available on the Charities SORP microsite.
Update Bulletin 2
Update Bulletin 2 amendments fall into the following three categories:
- Clarifying amendments, applicable to periods commencing on or after 5 October 2018;
- Significant amendments; and
- Minor amendments.
Clarifying amendments are made to the following SORP modules:
- Module 3: Accounting standards, policies, concepts and principles, including adjustment of estimates and errors. There is clarification of the existing requirement to provide comparative information.
- Module 5: Recognition of income, including legacies, grants and contract income. There is clarification about when payments by subsidiaries to their charitable parents that qualify for gift aid should be accrued in the individual accounts of the parent charity.
- Module 10: Balance Sheet. The undue cost or effort exemption for depreciating assets comprising of two or more major components which have substantially different useful economic lives is removed.
- Module 13: Events after the end of the reporting period. Clarification is given as to when payments by subsidiaries to their charitable parents that qualify for gift aid are adjusting events occurring after the end of the reporting period.
Unless there is a legal obligation at the Balance Sheet date to make a corporate gift aid payment, payment should be accounted for after the end of the reporting period. The Charities SORP-making body is developing an Information Sheet on accounting for corporate gift aid to assist charities and their subsidiaries deal with some of the complexities of this topic.
Significant amendments arising from the FRC’s 2017 triennial review are made to the following sections of the SORP:
- Accounting and Reporting by Charities: The Statement of Recommended Practice (SORP) - Scope and Application module. The date from when the amendments in Update Bulletin 2 are effective is inserted.
- Module 10: Balance Sheet. Amendments are made to:
- Permit charities which rent investment property to another group entity to measure the investment property either at cost (less depreciation and impairment) or at fair value.
- Remove the undue cost or effort exemption for the investment property component of mixed use property to require measurement at fair value.
- Remove the disclosure of stocks recognised as an expense from the notes to the accounts.
- Module 14: Statement of cash flows. Amendments are made requiring charities to prepare a reconciliation of net debt as a note to the statement of cash flows.
- Module 27: Charity mergers. The transfer of activities to a subsidiary undertaking are included as an example of a charity reconstruction that should be accounted for as a merger.
- Appendix 1: Glossary. The definition of the term ‘service potential’ is included.
There is a further section on more minor amendments arising from the 2017 triennial review.
Adopting Update Bulletin 2
Charities should consider their own particular circumstances when determining when to adopt the changes contained in Update Bulletin 2. However, all charities preparing ‘true and fair’ accounts in accordance with the Charities SORP (FRS 102), should adopt Update Bulletin 2 in full for periods commencing on or after 1 January 2019.
The four charity regulators in the UK and the Republic of Ireland have launched a governance review of the Charities SORP Committee and the Charities SORP-making process. A public consultation, Guiding the development of the Charities SORP, has been launched as part of the review. Comments are due by noon on 4 February. The findings and recommendations arising from the review are expected in the first half of 2019.
The ICAS Charities Panel will be responding to the consultation. If you would like to contribute to the Panel’s response, please email your comments to us by 14 January 2019.
The Charities SORP-making body has announced plans to publish a second edition of the Charities SORP (FRS 102) to incorporate the changes to company and charity law in the four jurisdictions of: England and Wales, Scotland, Northern Ireland and the Republic of Ireland. The next edition is expected at some point after the governance review has been completed.
It is possible that this second edition could consolidate amendments to the Charities SORP (FRS 102) included in Update Bulletin 1 and Update Bulletin 2.
The FRC has deferred plans to make major changes to FRS 102 arising from changes to International Financial Reporting Standards (IFRS). Therefore, the FRC will not be issuing a triennial review phase 2 exposure draft in 2018.
This is on the basis that the FRS considers that further evidence-gathering and analysis is needed before any proposals to reflect the following in FRS 102 are made:
- The principles of the expected loss model of IFRS 9 on financial instruments.
- IFRS 15 on revenue from contracts with customers.
- IFRS 16 on leases.
This means that further changes to the Charities SORP (FRS 102) arising from amendments to FRS 102 are not anticipated in the near future.