The next Charities SORP and FRS102 update

2025

The timeline for the issue of the next Charities SORP is now known following a recent annual sector update from the Charity Commission.

The planned timetable is now for the Charities SORP to be issued in March 2025 for a twelve week consultation period. Not much is being given away in advance of the issue of the SORP, however it is known that:

New three tier application

The Charities SORP draft will propose a new tier to the current two tier structure of the Charities SORP. This new tier is being introduced so that the Charities SORP and its application is more proportionable based on the size of the charity. It was always anticipated that there would be a new largest tier introduced which would only apply to the largest charities and require more disclosure from them as a result. It is therefore anticipated that this is planned to be introduced in the next Charities SORP.

Trustees report module 1

The Trustees report module is being extensively rewritten. What the changes are and how these will affect charities is yet to be established.

Changes arising from new FRS102

Whilst we wait for this draft Charities SORP, it essential for charities to familiarise themselves with the forthcoming changes will be arise from the new FRS102. Updated FRS 102 was published on 27 March 2024. The effective date is for accounting periods beginning on or after 1 January 2026, with early adoption permitted. Some of the key highlights for charities include:

Leases (new section 20) and income recognition (new section 23)

As anticipated, the distinction between operating and finance leases has been removed and all leases will need to be recognised on the balance sheet as right-to-use assets. However, there is an exemption for short-term leases and for low- value assets to remain off the balance sheet. This does mean that some operating leases may be excluded from the definition and FRS102 gives laptops, photocopiers, printers and small office equipment as examples of what may be considered as low-value. Therefore it is important for all charities to consider and document the leases that they have to determine their forthcoming treatment especially where property is involved.

Section 23 is a new section – revenue from contracts with customers. It follows a comprehensive five-step model for revenue recognition for all contracts with customers, which looks at identifying the distinct goods or services promised to the customer and the amount of consideration to which the entity will be entitled in exchange. This is an area where prior year adjustments and restatements could arise as a result of the changes in income recognition.

Low value, high volume donated goods

Paragraph 34.70 has clarified that there are circumstances when it may be impracticable to estimate the value of a resource. This is allowing for donated goods to be recognised when sold or distributed without the need to include them as stock at the year end. This is a welcome addition and clarification to the wording to confirm that this option is available. There are also additional requirements to disclose where the charity benefits from such transactions which it only recognises when distributed or sold.

Legacies

The new paragraph in respect of legacy income recognition as follows is to be found at PB34.70A, which includes the following wording:

‘Donations in the form of legacies are recognised when it is probable that the legacy will be received and its value can be measured reliably. Whether receipt of a legacy is probable and whether its value can be measured reliably may be affected by events such as valuations and disputes. An entity shall apply Section 32 Events after the End of the Reporting Period to determine whether the receipt of evidence about a legacy after the reporting date is an adjusting event after the end of the reporting period.’

The missing criteria in this wording is when entitlement occurs – so the current version references probate a likely indicator of entitlement being met. We will therefore need to wait for the Charities SORP to understand more detailed guidance on entitlement in respect of legacy recognition.

Other

There are other changes to heritage assets and the need to disclose unrecognised volunteer services for instance.

Conclusion

We would encourage you to have a discussion with your auditors on how the changes from FRS102 impact you and how to prepare for these changes without waiting for the draft Charities SORP to be issued – as they may affect your comparatives which commence on 1 January 2025.

*[Article last reviewed and up to date as of 12 December 2024.]

Earlier Discussion

Next Charities SORP and FRS102

The Financial Reporting Council has produced a project update on the next FRS102. The timeline for its application has moved from the accounting period beginning on, or after, 1 January 2025 to 1 January 2026 at the earliest; this being a year later than FRED 82 originally proposed.

Charities SORP

The delay on the FRS102 comes as welcome news as the Charities SORP has not yet been issued for consultation; this we are expecting in 2024 with a short 12-week consultation period and plans to have a final version issued by the Autumn/Winter 2024. This means, however, that there will be little time for the charity sector to consider and debate the next SORP if only a 12-week consultation period takes place.

We ask all charities to be prepared for the SORP review in 2024 so that you can review the commentaries that will be produced on the changes planned. This includes our own commentary and events, to please issue feedback to the SORP making body. It is evident from the FRS102 process that the final version will be updated by the FRC with the comments they have received.

The FRC response to FRED 82 says “We are preparing final amendments for issue, taking into account the responses received. The final amendments are likely to differ in a number of respects from the FRED 82 proposals; the basis for conclusions will explain our key judgements and decisions.”

By providing feedback on the proposed changes by the Charities SORP, we can ensure the changes remain relevant and effective.

Next FRS102

From the project update from the FRC on the next version of FRS102, it is clear that the proposed alignment with international standards on the five-step model for contract income recognition and for all leases, including operating leases being recognised on the balance sheet remains.

However, there are indications that the FRC are considering exemptions on the size criteria to which the requirements will apply; instead making the requirements more proportional, as well as looking to clarify recognition exemptions on low value leases.

The final version is due to be issued in the first half of 2024.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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