For Trustees' Week 2024, one of our charity specialists, Director Rory McCall, is building on theme of recruitment and retention by sharing knowledge with trustees.
The accounting rules for charities, set out in the Charities SORP (Statement of Recommended Practice) derive from Financial Reporting Standard 102 (FRS102) which is published by the Financial Reporting Council (FRC). It has been the expectation for some time that the SORP Committee, responsible for the development of the Charities SORP, will release a significant update to the standards which are likely to take effect from accounting periods beginning on or after 1st January 2026. The development of this has been delayed from the original timetable as we waited for the development of the revised FRS 102 which must be published before the revised Charities SORP can be issued.
Since we last reported on the matter there has been some development in this area, with the FRC having issued the revised FRS 102 in March 2024. As a result, the revised Charities SORP is now in development and is anticipated to go live early in 2025. It will then be subject to a 3-month consultation period and so it is likely that the new SORP will be published no later than Autumn 2025 to allow charities to start implementing its requirements from 1st January 2026.
Following publication of the revised FRS 102, the SORP Committee have confirmed that the key updates in the new SORP will relate to lease accounting and revenue recognition which we reported on earlier this year. Some other incremental changes are inevitable however are likely to be less burdensome for charities to apply.
The changes to lease accounting will mean a removal of the distinction between operating and finance leases for lessees, with more leases now recognised with an asset and liability on-balance sheet. However, there will be some exemptions from this for “low-value assets” or those with a total term of less than 12 months.
The changes to revenue recognition will see a single comprehensive five-step model introduced for revenue recognition for all contracts with customers, based on identifying the distinct goods or services promised to the customer and the amount of consideration to which the entity will be entitled in exchange.
Whilst the publication of the new SORP is still some time away, the publication of the revised FRS 102 provides a helpful steer as to what will be required of charities when the new SORP is published and allows them to start planning ahead. Once published, it is likely that guidance and helpsheets will be issued to aid implementation.
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