Whenever UK accounting standards (Generally Accepted Accounting Principles: UK GAAP) change, a new Accounting And Reporting By Charities: Statement Of Recommended Practice (SORP) is required. Since new UK GAAP becomes mandatory for reporting periods beginning on or after 1 January 2015, on 16 July 2014 the Charity Commission and Office of the Scottish Charity Regulator (OSCR) released the new Charities SORP 2015.
SORP 2015 has been rewritten to take a ‘think small first approach’ and to align with the new UK accounting standards. It has a modular format with the scope and application section followed by 14 core modules that are to be followed by all charities preparing their accounts on an accruals basis.
SORP 2015 separates into two versions: an new UK GAAP version (FRS 102 version) and a Financial Reporting Standard for Smaller Entities version (FRSSE version).
The smaller entities SORP (FRSSE SORP) can be used by any charity that meets the small company thresholds. That means it has to meet two of the following three criteria i.e. income of not more than £6.5m, a balance sheet total of not more than £3.26m and not more than 50 employees. There are reduced disclosures and the cashflow statement is optional.
The FRSSE SORP however has short shelf life up till the withdrawal of FRSSE. This may influence the choice of which SORP to adopt. It may be wise for charities that are eligible to follow FRSSE therefore to opt to follow the new UK GAAP SORP (FRS 102 SORP). Charities that do not qualify to be able to follow the FRSSE SORP will have to follow the FRS 102 SORP.
There are a number of changes to the financial statements formats and accounting policies compared to SORP 2005. Disclosures depend on whether FRS 102 or FRSSE is followed. In summary these include:
- simplified SoFA (only 5 incoming resources headings and 3 expenditure headings);
- single-sided transfers are not allowed in the SoFA;
- fair value changes in investments to be shown before ‘net income/expenditure’ heading on SoFA;
- new format of the statement of cash flows;
- the basis of going concern must be considered;
- clarification that income is first recognised when its receipt is ‘probable’;
- a more extensive requirement for discounting for the time value of money for both income and expenditure where settlement is delayed by more than 12 months and the effect is material;
- where practicable, donated goods for sale or distribution are measured at fair value on receipt;
- properties with a mix of investment and functional use are normally apportioned between tangible fixed assets and investment asset classes on the balance sheet;
- internally generated databases cannot normally be capitalised;
- a new category of ‘mixed motive’ investments is introduced;
- charities independently governed by a separate body of trustees cannot be treated as branches;
- joint venture entities are normally accounted for on an equity rather than gross equity basis;
- the definition of related parties has been aligned with the definitions set out in FRS 102 and section 118 of the Charities Act 2011 (however the disclosure concessions in FRS 102 are not available under the new SORP)
The new SORP will be effective for accounting periods beginning on or after 1 January 2015. Accounting standards require the comparative and opening balance sheets at the ‘date of transition’ to be restated if there are any changes.
For any changes in accounting standards, it is vital to plan early. Get in touch with our specialist charity team now to have your preparation underway!
Sources: Charity Commission, SORP micro-site, ACCA, Accountancy Live