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Changes to new draft SORP for charity accounting and reporting following consultation responses

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31 Mar 2014

The Charity Commission for England and Wales (Charity Commission) and the Office of the Scottish Charity Regulator (OSCR) have today published the analysis of responses received in relation to their Exposure Draft ("ED") of a revised Statement of Recommended Practice (SORP) setting out a new framework for charity accounting and reporting (“the Charities SORP”). The analysis identifies key decisions made by the Charities SORP Committee and highlights changes agreed as a result of comments received by respondents.

The Charity Commission and the OSCR published the original ED in July 2013 with a comment period ending in November 2013.  The Exposure Draft set out proposals for accounting and reporting by charities in the context of the new accounting framework introduced by Financial Reporting Standard (FRS) 102 applicable in the UK and Republic of Ireland for financial years beginning on or after 1 January 2015. 

Responses to the ED were considered by the Charities SORP Committee at their meetings of 9 and 26 January and 12 February 2014.  As a result of this analysis a number of key decisions were made over the ED and changes to the SORP agreed.  Some of the key decisions and changes include: 

  • Although many respondents “strongly supported” the retention of the columnar approach, the Charities SORP Committee agreed that charities may opt for a single column Statement of Financial Activities (SOFA) if only one class of funds is material and all other classes of funds are immaterial.
  • Corporate entities are to be specifically excluded from the definition of a branch (as supported by 62% of respondents) and when these are controlled by a charity they should be treated as a subsidiary.
  • All charities (as opposed to just larger charities as proposed in the ED) will be required to report staff salaries paid in bands of £10,000 for employees earning over £60,000.  It was also agreed that larger charities would need to disclose their remuneration policy for the pay of senior staff in their trustees’ annual report. 
  • No requirement for separate disclosure of income from government sources.
  • Incorporating into the SORP advice on combining the Strategic Report required of medium and large UK registered charitable companies and the trustees’ annual report.
  • Changes to the text of the SORP to include greater clarity and more guidance on the recognition legacy income and the UK retail GIFT Aid scheme.
  • The reinstatement of the disclosure of all ex-gratia payments at the request of funders as they considered that this is valuable information. 

Additionally, the Charity Commission and the OSCR have announced that there will be two SORPS; one based on FRS 102 and another based on the Financial Reporting Standard for Smaller Entities (FRSSE).  This decision was taken to ensure that when the current FRSSE framework is amended (in light of the new EU Accounting Directive), this would not disrupt non-FRSSE users (the majority of charities preparing accounts) who could continue to apply the separate FRS 102-based SORP.  A separate SORP based on the FRSSE would also allow the SORP to be specifically tailored for the requirements of the FRSSE and meets the demands of a minority of respondents who commented that the combined approach in the ED “gave insufficient attention to the FRSSE due to the inappropriate application of FRS 102 terminology and accounting treatments for issues specifically addressed by the FRSSE". 

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