The joint SORP-making body has recently opened a consultation on the updated version of the Statement of Recommended Practice (SORP), which governs accounting and reporting for charities. This consultation is open for public feedback and charities are encouraged to participate actively.
What is the SORP?
The Statement of Recommended Practice (SORP) provides guidelines ensuring that charity accounts are consistent, transparent, and understandable. This helps donors, beneficiaries, and the public compare and assess charity financial information clearly.
Why Has the SORP Been Updated?
The SORP has been revised to align with recent changes to the Financial Reporting Standard FRS 102. Key changes include how charities must account for certain types of income and leases. Although these changes are already confirmed, the consultation seeks feedback on how they are explained within the SORP.
Lease Accounting Changes
Under the current FRS 102, charities account for operating leases as an expense. However, the new FRS 102 will require most operating leases to be accounted for on the balance sheet. Consequently, charities leasing assets will notice increases in both assets and liabilities on their balance sheets. This will also affect how lease expenses are presented in the statement of financial activities.
The SORP-making body recognises this will be challenging, urging charities to:
- Refer to FRS 102 and FRC resources.
- Review current lease arrangements.
- Establish if leases qualify for simplifications, such as short-term or low-value leases.
- Identify leases that must appear on the balance sheet.
- Understand the valuation approach for leases.
- Implement helpful record-keeping practices.
- Evaluate the impact on financial arrangements and covenants.
- Assess whether audit requirements will change due to increased asset values.
- Seek professional advice and speak with auditors or independent examiners if necessary.
Revenue Recognition Changes
The updated FRS 102 Section 23 introduces a new five-step revenue recognition model for income from exchange contracts. Charities must carefully reassess their revenue recognition policies to comply with these new standards.
Charities should prepare by:
- Reviewing FRS 102 and resources provided by the FRC.
- Examining current contracts and income streams.
- Using the new five-step model to identify the amount and timing of income.
- Enhancing current record-keeping systems for future financial statement preparation.
- Considering impacts on financial arrangements and covenants.
- Obtaining professional advice and consulting with auditors or independent examiners.
Additional Proposed Improvements
The updated SORP also includes proposals aimed at simplifying reporting and enhancing clarity:
- Tiered Reporting: Three reporting tiers based on income levels.
- Enhanced Reporting: Improved guidelines for reporting on impact, reserves, going concern status, and volunteer contributions.
- ESG Reporting: Proportionate reporting standards for environmental, social, and governance (ESG) issues.
Who Should Get Involved?
Feedback is sought from:
- Charities and trustees
- Auditors and independent examiners
- Charity employees and beneficiaries
- Donors, funders, financial supporters, and other stakeholders
Consultation Period
The consultation opened on 28 March 2025 and will run for 12 weeks. The final version is expected to be published in autumn 2025 and will take effect from January 2026.
Statements from Regulators
David Holdsworth, CEO of the Charity Commission for England and Wales, said:
“Some charities have to prepare accounts using the Charities SORP, whilst others choose to do so. The framework promotes transparency and accountability over the stewardship of the resources charities hold, which is vital to public trust and confidence in the sector. This new draft has been developed through extensive engagement with experts including through the SORP Committee, and can be improved further through this formal consultation. I really encourage charities and others with an interest or experience to give us their feedback.“
Frances McCandless, CEO of Charity Commission for Northern Ireland, said:
“The SORP plays a crucial role in setting accountancy standards for charities. To ensure it evolves to meet modern expectations and supports those preparing, reviewing, and reading charity accounts, we need your input. This consultation is a key opportunity for those who use the SORP to shape its future. With implementation approaching in January 2026, and as FRS 102 will not be changing, now is also the time for charities to start thinking about how they can be ready to report under the new standards.“
Next Steps
Stakeholders can leave their feedback by visiting the consultation page.
Charities are advised to actively engage in the consultation, ensuring their views are represented, and start planning for the adoption of the updated SORP.
This engagement helps charities smoothly transition to the new standards, maintaining transparency and accountability to stakeholders.
For expert guidance on preparing for these changes or assistance with your charity’s accounting and reporting needs, contact Ward Goodman today. Our experienced team can help ensure your charity remains compliant and transparent, providing peace of mind during this transition.
