The Financial Reporting Council (FRC) is consulting on changes to FRS 102 as part of its periodic review. (Its call for evidence closes at the end of October.) This is of particular interest to charities, as FRS 102 has been the foundation of UK charity financial reporting, as well as corporate reporting, since 2014.
The charities statement of recommended practice (SORP), which provides the application of FRS 102 for most UK charities, must also be updated when standards change. The new FRS 102 is expected to be effective for financial years beginning on or after 1 January 2024, so the new SORP needs to be ready by that time.
Mindful of the FRC’s plans, the SORP-making body and its advisory Charities SORP Committee convened our own listening exercise to talk about the new engagement process and who is representing the views of charities. The new process involves a number of steps (see page 7 of the information pack).
Knowing what is in discussion can help you consider how your charity may be affected
We conducted an across-the-board review, with several topics being chosen for discussion this year as part of our updating of the next SORP.
Knowing what is in discussion can help you consider how your charity may be affected and what change might mean. This will also will equip you to participate in the formal open consultation anticipated for spring 2023.
Topics under review
The topics chosen for review range from points of detail to much wider areas for debate. Each is being discussed in time for us to begin the drafting of the new SORP in early 2022. The topics are as follows:
- Summary financial information/key facts page: whether to have them, what to include and whether to require them
- Impact reporting (reporting on the difference a charity makes): whether to make mandatory and, if so, which charities must do it
- Sustainability reporting: what might be covered and its desirability for charity transparency
- Reserves: definition and merits of having a ‘reserves’ note in the accounts and not just a commentary in the trustees’ annual report
- Support costs: whether to continue to have this category and the need for consistency in estimation to improve comparability
- Expenditure classification: suggestions around removing the requirement for the allocation of support service costs, and clarifying the use of natural classifications of expenditure for smaller charities
- Activity reporting (describing how money was spent): how best to link the cost of the activity and the income
- Accrual basis of accounting for grants: whether to permit charities to use this
- Donated goods and services: basis for their inclusion in the accounts
- Income recognition: current issues of interpretation on classification for some larger charities, and scope for the recognition in the accounts of multi-annual funding
- Legacies: whether there is a need for more guidance/clarity on accounting treatment
- Presentation of the Statement of Financial Activities (SoFA)
- Notes on financial information: how best to reduce the length and complexity of financial information (linked to the topic on materiality – see below).
- Funds note: whether to make this more prominent, and whether more guidance on this note is needed
- Materiality: whether more guidance is needed.
Together with changes made to FRS 102, the conclusions reached on these 15 topics will shape the next SORP. To learn more about our progress in updating the next SORP, the tentative decisions already taken and the next steps to issuing it, do join ACCA’s Charities Conference on 18–22 October (revisit AB for more details later this month).
A range of SORP resources are available, such as the worked examples and how best to report on the impact of the pandemic.