Choices for small charities under the new SORP
In 2015, we will see the full implementation of the new SORP for charities, with financial accounting periods beginning on and after 1 January 2015. There are two SORPs that all charities preparing accounts on an accruals basis must report under: Charities SORP FRSSE and Charities SORP FRS 102.
Charities below the audit threshold (gross income of £500k; or gross income of £250k and total assets exceeding £3.26m) will have a choice of whether they can adopt the SORP FRSSE or SORP FRS 102, which is more in line with the international accounting standards, and can be prepared with either full or reduced disclosures.
Charities above the audit threshold can choose between Charities SORP FRSSE (if within the FRSSE thresholds) and Charities SORP FRS 102. If not within the FRSSE threshold, then the charity must use Charities SORP FRS 102 with the full disclosures. The FRSSE threshold is defined by the Companies Act for Small Companies.
The two SORPs have common formats for the balance sheet and fund accounting as well as the narrative disclosures in the Trustees' Reports with the common aim of promoting a more transparent and clear set of statements for the readers.
However, there are several issues which could affect any charity who will be preparing their accounts under the FRS 102 SORP, such as there being much more emphasis on the risk and reserve management in the annual report; the recognition of income basis on the probable rather than virtually certain basis; different layouts for SOFA; fair value recognition of gains and losses within the income and expenditure account; extra disclosure for financial instruments; accruing for holiday pay and disclosing remuneration for senior personnel; options for certain contracts to be included within restricted funds as well as additional disclosures for related party relationships.
The Financial Reporting Council are proposing to withdraw the FRSSE, leaving small charities with a difficult choice – stick with FRSSE and then change to FRS 102, or change over to FRS102 now to avoid changing twice in succession. Charities SORP FRS 102 offers reduced disclosures which means that charities have the flexibility to cherry-pick and opt to provide more information as and when it is required or useful for the readers. This option of disclosure may be beneficial for those charities attracting funds through fundraising and donors.
Every charity is unique and therefore the best option is to go through the SORP and compare it to the charity's specific needs. If you wish to discuss this further for your charity get in touch with Annie Lee, our charities and education specialist for more information.