UK accounting changes spell ‘trouble’ for the Charities SORP-making body

By Christine Scott, Assistant Director, Charities and Pensions

30 September 2015

The Charities SORP-making body must soon make a final decision on the future of accounting for charities classified as 'small' for periods commencing on or after 1 January 2016.

'Small' in this instance is defined in terms of an entity's eligibility to apply the new small entities regime under Financial Reporting Standard (FRS) 102.  In fact this means all but the very largest charities in the UK could meet the revised size criteria for 'small' in view of the increase in the gross income condition from £6.5 million to £10.2 million, which comes into being at the same time.

The SORP-making body has reservations about the suitability of the new small entities regime, reservations which are shared by ICAS given the level of public accountability we expect from charities.

Therefore, in its latest consultation on the future of the Charities SORP, which closed on 18 September, the SORP-making body proposed that all charities be required to apply full FRS 102, when the Financial Reporting Standard for Smaller Entities (FRSSE) is withdrawn. 

While reasonable in itself, the problem lies with the absence of any clear authority sitting with the SORP-making body to dis-apply the small entities regime, set out in Section 1A of FRS 102, to charitable companies. 

Size criteria for 'small' for accounting periods commencing on or after 1 January 2016:

  • Gross income (turnover) of not more than £10.2 million
  • Balance Sheet total (gross assets) of not more than £5.1 million
  • Employees of not more than 50

The Financial Reporting Council's (FRC's) consultation on the implementation of the small entities regime makes it clear that the new regime is available to charities and we understand that, in the case of non-company charities, the SORP-making body can dis-apply the small entities regime, through the status of the Charities SORP as mandatory under charity law. 

However, not all charitable companies in the UK are required to prepare their accounts under charity law but they must all prepare their accounts under company law.  The position under company law is that the FRC, which sets UK accounting standards, cannot require companies eligible to apply the new small entities regime to make disclosures over and above those set out in company law.  This restriction on the FRC is countered by an overarching requirement for accounts prepared under UK GAAP to give a 'true and fair' view.

Read the ICAS Charity Commitee response

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The ICAS Charities Committee in its response to this consultation is urging the SORP-making body to open discussions with the Department for Business, Innovation and Skills (BIS) and the FRC as to how the small entities regime can be dis-applied for charitable companies. 

From 1 April 2016, all charities will be required to apply the recognition and measurement requirements in FRS 102 so the concessions available under the new small entities regime are limited to disclosure concessions and charity trustees would still be obliged to ensure that the accounts give a 'true and fair' view.  However, these concessions if taken up by charities to the fullest extent possible could result in the under disclosure of information about charity reserves and there is a risk material uncertainties around going concern would not reported by charity trustees.


  • Consultations and responses
  • Charities
  • Corporate and financial reporting

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