The new SORPs introduced
Nigel Davies, Head of Accountancy
New SORPs wef 1/1/2015
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Why is charity accounting changing?
Why 2 SORPs from 2015?
Changes to the trustees’ annual report
FRS 102 SORP overview
FRSSE SORP overview
Controversial topics
SORP micro-site
Why is charity accounting
changing?
• UK Generally accepted accounting Practice
(GAAP) is changing from 1/1/2015
• New GAAP requires a new SORP
• SORP consultation in 2013 with 26 events,
1600 participants and 179 responses
• New SORPs take effect for financial years
beginning on or after 1 January 2015
• New regulations required
Why 2 SORPs?
• A separate FRS 102 SORP and a separate
FRSSE SORP
• Trustees need to make the choice
• Why 2 SORPs? Because:
– EU accounting Directive (mandatory from 2016)
changes small company reporting and FRSSE
– A new FRSSE framework likely in 2015-16
– 2 SORPs avoids disruption to FRS 102 users
– 2 SORPs simplifies the text of each
– Some criticised the combined approach
Changes to the Trustees’ Annual
Report (all charities)
• Common format – whether FRSSE or FRS 102 or
cash accounting
• Distinguishes requirements of all charities from those
of ‘larger’ charities (those subject to statutory audit)
as a separate section
• Terms used are ‘must’ ‘should’ and ‘may’
• Main changes to content requirements for all charities
are:
– All trustees must be listed
– Must disclose if no reserves policy with reasons
What does SORP mean by a larger
charity?
• Definition is based on the charity audit
requirements of:
– Gross income exceeds £500,000 or
– Gross income exceeds £250,000 and total assets
exceed £3.26m
• Charities subject to audit are ‘larger charities’ and
more is required of them by the charities SORP
• Charities not subject to audit are ‘smaller
charities’ which have a baseline of reporting
under the SORP
Changes to the Trustees’ Annual
Report (larger charities)
• Main changes to content requirements for larger
charities are:
– An explanation of social investment policies, if applicable
– An explanation of the financial effect of significant events
– An explanation of principal risks and uncertainties and a
summary of plans and strategies for managing them
– (Reserves definition – use the SORP one or explain your
own)
– Arrangements for setting pay of key management personnel
and any benchmarks, criteria or parameters used
FRS 102 SORP overview
• Terms used are ‘must’ ‘should’ and ‘may’
• Identifies where SORP requires more than FRS 102
• Modular approach (hand-out 1):
– 14 core modules – incl’ Cash-flow (module 14)
– 15 modules followed where applicable
• SORP based on FRS 102 (more disclosure and a
statement of cash-flows)
• New look SoFA (hand-out 2)
Main changes (accounts) -1
• See help-sheet 2 for more information:
• FRS 102 – all must provide a statement of cash flows
• Main changes are:
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Sofa and comparatives (module 4)
Discounting items to present value
Income recognition (module 5)
Donated goods for distribution or sale recognise on receipt
(subject to cost-benefit and practicality) (module 6)
– Expenditure esp. paid leave (module 7)
– Related party definition & disclosures (module 9)
Main changes (accounts) -2
• Main changes continued:
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Salary bandings apply to all charities now (module 9)
Investments (modules 10 and 21)
‘Other financial assets/liabilities’ (module 11)
Grant-making disclosures via the web (module 16)
Extra payments to multi-employer pension schemes (module
17)
– Heritage assets definition and valuation (module 18)
– Total return (module 20)
– Groups and combinations (modules 23 to 29)
FRSSE SORP overview
• Terms used are ‘must’ ‘should’ and ‘may’
• Identifies where SORP requires more than FRSSE 2015
• Modular approach (hand-out 1):
– 14 core modules – Cash-flow (module 14) optional
– 15 modules followed where applicable
• New look SoFA (hand-out 3)
• FRSSE SORP identifies
– FRSSE requirements and permitted FRSSE options
– Must follow ‘current practice’ for PBE / charity specific issues
– An option to retain existing policies (‘accepted practice’) for other
transactions
– Otherwise should have regard to current practice (FRS 102)
Main changes – SoFAs compared
2005 SORP (SoFA
extract)
Voluntary income
Activities for generating
funds
Investment income
Incoming resources from
charitable activities
Other incoming
resources
Total incoming resources
FRSSE SORP (SoFA extract)
FRS 102 SORP (SoFA extract)
Donations and legacies
Other trading activities
Donations and legacies
Other trading activities
Income from Investments
Income from Charitable
activities
Other income
Income from Investments
Income from Charitable
activities
Other income
Total income and
endowments
Total income and
endowments
Costs of generating
voluntary income
Fundraising trading: cost
of goods sold and other
costs
Investment management
costs
Resources expended on
Charitable activities
Governance costs
Other resources
expended
Expenditure on Raising funds
Expenditure on Raising funds
Expenditure on Charitable
activities
Expenditure on Charitable
activities
Other expenditure
Other expenditure
Net incoming/outgoing
resources before
transfers
Net income/(expenditure)
Net gains/(losses) on
investments
Net income/ (expenditure)
Gross transfers between
funds
Transfers between funds
Transfers between funds
Gains on revaluation of
fixed assets for charity’s
own use
Gains/losses on
investment assets
Actuarial gains/losses on
defined benefit pension
schemes
Gains/(losses) on revaluation
of fixed assets
Gains/(losses) on revaluation
of fixed assets
Net movement in funds
Net movement in funds
Gains/(losses) on investment
assets
Actuarial gains/(losses) on
defined benefit pension
schemes
Actuarial gains/(losses) on
defined benefit pension
schemes
Other gains/(losses)
Net movement in funds
Controversial topics
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Senior staff salaries and governance costs disclosure
Impact/performance reporting for ‘larger’ charities
Legacies – codifying practice
Government income – whether to disclose
Single column SoFA – when to permit
Expenditure recognition and grant commitments –
codifying practice
• Branches – clarifying the definition
• Control and dominant influence – how much to
explain & how much to cross refer to FRS 102
More on legacies
• Module 5 Legacies (FRS 102 ref) [FRSSE ref]:
– More guidance on ‘entitlement’ (paragraph 5.29) [5.30]
– When is receipt ‘normally’ probable (paragraph 5.31) [5.32]?
– Using an estimation technique (numerous immaterial
legacies) or not (paragraph 5.32) [5.33]
– Post balance sheet event (paragraph 5.33)/contingent asset
(paragraph 5.34) [5.34]
– Measurement (paragraphs 5.35 and 5.36 – FRS 102 only)
– Impairment/bad debt (paragraph 5.37) [5.36]
SORP micro-site
• Dedicated site: www.charitysorp.org
• Micro-site is the location for:
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free SORPs and modules
‘Customise your SORP’
3 help-sheets
Order hard copy SORPs
Future SORP Committee arrangements
Two FRS 102 model examples added
Two FRSSE model examples added in 2015