The Charity SORP
All charities across the UK who do not prepare receipts and payments accounts should adopt the accounting principles set out in the Statement of Recommended Practice for Accounting and Reporting by Charities (‘The SORP’) when preparing their financial statements.
The SORP is based upon FRS102, The Financial Reporting Standard applicable in the UK and Republic of Ireland, being the underlying reporting framework that underpins Generally Accepted Accounting Practice in the UK. Regular updates are required to ensure that The SORP remains consistent with FRS102 and any changing legislative requirements, and since The SORP’s initial release in 2014 there have been two Update Bulletins which have both been reflected in the second edition of the SORP, published in October 2019.
There are no changes to the SORP to report although two new Information Sheets have been published which are considered below. There is also a proposed change to FRS102 regarding accounting for operating leases which will be of relevance to charities. In March the SORP Committee published guidance on the implications COVID-19 could have on charity reporting. The guidance sets out how to reflect the impact of the outbreak in the trustees’ report for issues such as a fall in fundraising income or changes in demand for the charity’s services, and how the charity is responding. It also addresses the accounts themselves, covering issues such as going concern, the impact on the measurement of provisions and the disclosure of post balance sheet events.
SORP Information Sheets
Information Sheets are published by the joint SORP-making body and seek to clarify the application of the SORP, or cover matters not addressed in the SORP but are relevant to charity reporting. Two new Information Sheets have been published, although are likely to be of limited application to most charities.
However where relevant, preparers of charity accounts should read them.
Information Sheet 5 is of relevance to charitable companies and addresses the implications of a new requirement to disclose details of energy usage contained within The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. These new regulations will apply to charitable companies across the UK that meet the Companies Act 2006 definition of a large company, which is broadly defined as one that meets two or more of the following criteria for two consecutive financial years:
- gross annual income of more than £36 million;
- gross assets of more than £18 million; or
- more than 250 employees
Additional guidance on determining the size of a charitable company is included in Information Sheet 3. Note that charities that do not meet the large company criteria are not prevented from including disclosure on their energy use in their annual report if they believe it will be useful in improving transparency and where it provides the users of the annual report with a greater understanding of the charity’s performance.
For accounting periods commencing on or after 1 April 2019, those charitable companies which are subject to these new regulations are required to include as part of the ‘Achievements and Performance’ part of their trustees’ report information on their UK energy use and associated greenhouse gas emissions relating to gas, electricity and transport fuel, including an intensity ratio, and details of any energy efficiency action taken. Alternatively the information could be presented as part of a separate environmental report, although one that is clearly marked as forming part of the charitable company’s directors’ report.
The guidance included within the Information Sheet explains in greater detail each of the disclosure requirements, as well as the exemption from disclosure that exists for low energy users, such as those which have consumed 40MWh or less of energy during the reporting period. There is also guidance on the application of the regulations to charitable groups. Additionally there is a link to more detailed government guidance that has been published that applied to all organisations that are required to report on their energy usage, not just charities.
Information Sheet 6 confirms that charitable companies registered in the Republic of Ireland are unable to use merger accounting where they enter into a business combination with a third party, the same as charitable companies incorporated in the United Kingdom. Unincorporated charities and Charitable Incorporated Organisations will continue to apply merger accounting to business combinations where the qualifying criteria set out in the Charity SORP are met, as will charitable companies registered outside of the UK and the Republic of Ireland where the local statutory framework does not prevent the use of merger accounting.