Following the release of FRS 102 in March, the new charities SORP (Statement of Recommended Practice) has been released in draft form. A four month consultation will now take place before any amendments are incorporated and the new SORP is formally implemented.
For accounting periods commencing on or after 1 January 2015, charities will need to prepare their accounts either under the FRSSE (the Financial Reporting Standard for Smaller Entities) or FRS 102. The SORP provides guidance for charities on applying these standards. Therefore, it remains a technical document, although effort has been made to make this more accessible and practical.

Like its predecessor, the new SORP must be followed by charities when preparing their accounts and the Trustees’ Annual Report, unless a charity also falls under the requirements of other SORP, such as for Higher Education Institutions, in which case these other SORPs take priority.

The SORP applies to those charities preparing accounts on an accruals basis – it does not apply to those charities who prepare their annual accounts on a receipts and payments basis.

So what are the changes?

‘Think Small First’
The first thing to note is that the SORP has been prepared taking a ‘think small first’ approach. Given the fact that 82% of registered charities have incomes below £100,000, this is an appropriate and reasonable approach, and will hopefully provide clear guidance to smaller charities. However, it is worth pointing out at this stage that the SORP applies to those charities preparing accounts on an accruals basis – it does not apply to those charities who prepare their annual accounts on a receipts and payments basis.

Modular Approach
The structure of the SORP has been changed, with it now been presented in modular format. The SORP consists of different modules – fourteen are core modules that are applicable for all charities (such as the Trustees’ Report, fund accounting, allocating costs by activity, and the statement of cash flows), with the remaining fifteen modules providing guidance on particular matters, transactions, structures etc (for example heritage assets, disclosure of grant-making activities, and charity mergers).

This modular approach builds on the ‘think small first’ approach. It’s usually much easier to ‘add on than take away’. Therefore, the modular approach allows charities to pick and choose only those additional modules that are applicable to them, rather than as previously having to work through all the detailed guidance to determine what is applicable.

Another benefit of the modular approach is that the introduction to each section provides guidance on which sections of that module are applicable to those preparing accounts under FRSSE and those under FRS 102. Again, this is aimed at making the guidance within SORP more accessible.

Layout and SOFA Headings
The layout of the accounts and Trustees’ Annual Report, are largely unchanged. However, there have been changes to the categories on the Statement of Financial Activity (SOFA). These headings have been updated and appear more ‘user-friendly’, perhaps this has been influenced by research carried by Ipsos Mori for the Charity Commission whereby 96% of respondents said charities should provide the public with clear information on ‘how they spend their money’. It is hoped that these revised headings will help to improve the quality of financial reporting by charities.

A summary of the changes to the headings are as follows:

Existing SORP	New SORP
Income	Income
Income from generated funds	Donations
Income from charitable activities	Earned from charitable activities
	Earned from other activities
Other incoming resources	Investment and other income
Expenditure	Expenditure
Cost of generating funds	Cost of raising funds
Costs of charitable activities	Expenditure on charitable activities
Governance costs
Other resources expended	Other expenditure

The main point from the above is that governance costs are no longer split out on the face of the SOFA; instead these are to be included within ‘Expenditure on charitable activities’.

There are some interesting technical points that also require discussion, such as income recognition in light of FRS 102, and these will be the subject of future blogs.

The above points hopefully provide some guidance on the changes to the approach of the SORP and layout of charity accounts. If anyone has any queries regarding the new SORP and how it may affect them, please don’t hesitate to get in touch.