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Charity Commission and OSCR consult on revisions to Charities SORPs as a result of changes to UK Accounting Standards

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18 Jun 2015

The Charity Commission for England and Wales (‘Charity Commission’) and the Office of the Scottish Charity Regulator (OSCR) have today published an Exposure Draft on further revisions to the Charities Statement of Recommended Practice (SORPs) as a result of changes to UK Accounting Standards that are planned to come into effect for accounting periods beginning on or after 1 January 2016.

SORPS issued by the Charity Commission and OSCR apply to charities 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 within the charities sector. 

In June 2014, the Financial Reporting Council (FRC) approved two new Charities SORPS for publication; one set out the accounting and reporting requirements of charities in the context of Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (“Charities SORP (FRS 102)) and the other was a separate SORP based upon the Financial Reporting Standard for Smaller Entities (FRSSE) (“Charities SORP (FRSSE)).

As a result the UK implementation of the EU Accounting Directive, the FRC, in February 2015, published three financial reporting exposure drafts proposing changes to the existing UK financial reporting framework to take effect for accounting periods beginning on or after 1 January 2016.  As SORPS are required to be updated to comply with changes to accounting Standards, these proposed changes have a direct impact on the Charities SORPS. 

The Charity Commission and the OSCR are consulting on three areas that affect the Charites SORPS:

  • Charities SORP (FRS 102).  The consultation proposes to update the Charities SORP (FRS 102) for changes arising from Financial Reporting Exposure Draft (FRED) 59 - Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Small entities and other minor amendments issued by the FRC in February 2015.
  • Revising the definition of a ‘larger’ charity.  The Charities Act 2011 (Accounts and Audit) Order 2015 increased the charity audit income threshold from £500,000 to £1 million in England and Wales.  Larger charities are required to make more disclosures in the Trustees’ Annual Report.  The Charity Commission and the OSCR are proposing to ‘delink’ the definition of larger charities in Appendix 1: Glossary of Terms in the Charities SORP (FRS 102) from the new statutory audit threshold with effect for reporting periods ending on or after 31 March 2015.  This would mean that ‘larger charities’ would be those as defined in Appendix 1: Glossary of Terms in the Charities SORP (FRS 102) (those charities with a gross income of £500,000 (UK) or 500,000 Euros (Republic of Ireland)) rather than as newly defined for statutory audit purposes when preparing the Trustees’ Annual Report.  The consultation explains the reasons why this is proposed including the ability to future proof the SORP for any further changes to statutory audit thresholds and to preserve the current level of accountability that large charities have. 

The Charity Commission and the OSCR are aware that further changes might be required to the Charities SORP (FRS 102) if the FRC makes further changes in finalising FRED 59.  These changes are proposed to be included within an ‘Update Bulletin’ to the Charities SORP (FRS 102) rather than reissuing the Charities SORP (FRS 102).  As a result Charities following the Charities SORP (FRS 102) will have to refer both to the ‘Updated Bulletin’ and the Charities SORP (FRS 102) when preparing their accounts and reports. 

  • Replacement for the Charities SORP (FRSSE).  As a result of proposals in FRED 60 Draft amendments to FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework, the FRSSE will be replaced by a new section within FRS 102 (Section 1A Small Entities – the proposed framework of which is proposed in FRED 59) which will set out the revised presentation and disclosure requirements for financial reporting by small entities.  This means that the Charities SORP (FRSSE) will no longer be applicable for accounting periods beginning on or after 1 January 2016.  The Charity Commission and the OSCR are consulting on possible ways to respond to the withdrawal of the FRSSE from 1 January 2016.  The Charity Commission and OSCR are proposing:
    • That all charities use the Charities SORP (FRS 102) for accounting periods beginning on or after 1 January 2016.  This would effectively disapply the small entities regime option included within Section 1A of FRED 59.  The Charity Commission and the OSCR comment that “dropping the ‘small entity regime option’ would unify the reporting framework and provide to donors and users of the accounts a common presentation of financial information”
    • That only those ‘larger charities’ (i.e. those that meet the SORP definition of large as noted above) are required to prepare a cash flow statement.

Comments on the consultation are invited until 18 September 2015.  The Charity Commission and the OSCR anticipate that the Update Bulletin will be published late February or early March 2016. The Update bulletin will be published on the dedicated micro-site once it has gained the necessary approval from the FRC.

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