Comments invited on new draft SORP for Further and Higher Education

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15 Aug, 2013

The Further and Higher Education SORP Board (the SORP Board) has published an Exposure Draft (ED) on a revised Statement of Recommended Practice (SORP) setting out proposals for accounting for further and higher education institutions in the UK. Comments are invited by the SORP Board until 17 November 2013.

SORPS issued by the SORP Board apply to further and higher education institutions preparing accounts under UK GAAP to present a ‘true and fair view’ and are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique to the sector within which such institutions operate.  The SORP is also intended to “promote comparability in reporting across the sector”.

The ED updates the previous SORP to include the requirements of FRS 100 ‘Application of Financial Reporting Requirements’, FRS 101 ‘Reduced Disclosure Framework’ and FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'; the three main standards that were introduced as a package to replace UK GAAP.

The new SORP will result in a number of changes on how further and higher education institutions present financial performance, assets and liabilities in their financial statements.  The most significant changes are:

  • Changes to existing terminology to reflect FRS 102 most notably the Income and Expenditure Account becoming the ‘Statement of Comprehensive Income’, the Balance Sheet becoming the ‘Statement of Financial Position ‘ and the Statement of Recognised Gains and Losses becoming ‘Changes to Reserves and Funds’;
  • Changes to accounting for endowments and donations and capital grants as a result of the new revenue recognition rules.  Significantly the current practice of deferring capital grants on the Balance Sheet and then releasing to the Income and Expenditure Account will no longer occur.  Most capital grants will now be credited to the Statement of Comprehensive Income rather than the Statement of Financial Position (deferred capital grants);
  • The requirements to record a liability in respect of a defined benefit multi-employer scheme.  The ED states “where an institution participates in a defined multi-employer plan and sufficient information is not available to use defined benefit accounting and the institution has an obligation to fund past deficits within the scheme, the institution must recognise a liability on the Statement of Financial Position for this obligation”.  The SORP Board highlights that this liability is different to the actuarial deficit currently reported in the balance sheet which they say will “add to the confusion of how pension funds are reflected in our Financial Statements and make comparing different HEIs difficult”;
  • The requirements to account for certain student accommodation arrangements with third parties as finance leases on the Statement of Financial Position; and
  • Changes required to report assets and liabilities at fair value in the Statement of Financial Position.

The SORP Board will consider all of the responses received with a view to issuing a final version of the SORP in June 2014. 

The final SORP will be effective for accounting periods beginning on or after 1 January 2015. 

Click for further information from the SORP Board on the draft SORP and the Exposure Draft Statement of Recommended Practice: Accounting for Further and Higher Education (all links to further and higher education SORP website).

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