Upcoming changes to FRS 102 and their impact on Charities SORP

Significant changes to financial reporting for charities are on the horizon as the Financial Reporting Standard (FRS) 102 undergoes revisions, directly impacting the Charities Statement of Recommended Practice (SORP). These updates, set to take effect for financial periods beginning on or after 1 January 2026, will bring key changes to how charities prepare their financial statements. With an emphasis on improving transparency, consistency, and financial clarity, charities are encouraged to begin preparing for the transition now.

Key Changes to FRS 102 and SORP

The revised FRS 102 aligns with the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs), meaning charities will need to adopt new requirements that could significantly impact financial reporting. Some of the major changes include:

•  Recognition and Measurement of Income:
  Charities will need to apply a more structured approach to recognising income, particularly for donations, grants, and contracts. This may result in changes to how and when income is reported in financial statements.
• Enhanced Disclosure Requirements:
  There will be an increased emphasis on transparency, requiring charities to provide more detailed disclosures regarding their income sources, restricted funds, and the assumptions made in financial reporting.
• Leases and Other Financial Liabilities:
  Changes in lease accounting will require charities to recognise more lease agreements on the balance sheet, which could impact financial ratios and reporting obligations.

What This Means for Charities

The Charities SORP-making body, which includes representatives from the Charity Commission for England and Wales, the Scottish Charity Regulator (OSCR), and the Charity Commission for Northern Ireland, has been working closely with the Financial Reporting Council (FRC) to ensure the updated SORP provides appropriate guidance for charities implementing these changes.

While the fundamental principles of charity financial reporting remain, charities will likely need to adjust their accounting systems, update internal policies, and train staff on the new requirements. Larger charities, in particular, may need to review their existing income recognition policies to ensure compliance with the revised framework.

Preparing for the Transition

To ensure a smooth transition, charities should begin reviewing the changes now and take the following steps:

• Understand the new requirements: Finance teams should familiarise themselves with the upcoming changes and identify areas where adjustments will be needed.
• Engage with auditors and advisors: Consulting with auditors and financial advisors will help charities assess how the changes will impact their specific operations.
• Review income recognition policies: Charities receiving grants, donations, or funding from multiple sources should evaluate their income recognition policies to ensure alignment with the new standards.
• Assess lease agreements and other financial commitments: With the changes in lease accounting, charities should review their lease portfolios and consider how this will affect financial reporting.
• Prepare for increased disclosure requirements: Ensuring that financial statements include the necessary details will be crucial for maintaining transparency and regulatory compliance.

While the changes to FRS 102 and SORP represent an evolution in charity financial reporting rather than a complete overhaul, charities must proactively adapt to avoid last-minute compliance challenges. By planning ahead and integrating these updates into their financial reporting practices, charities can continue to provide clear, transparent, and accountable financial information to regulators, donors, and stakeholders.

As part of this process, an Exposure Draft of the new Charities SORP has been published, outlining the proposed amendments in full. The draft serves as a key reference point for charities and finance professionals, providing a detailed look at how financial reporting requirements will evolve.

Open Consultation: Have Your Say

Alongside these updates, the Charities SORP Committee has launched a consultation to gather feedback from charities, auditors, and sector experts on the proposed changes. The consultation provides an opportunity for organisations to help shape the future of charity accounting by sharing insights on how the revisions might impact them in practice.

The consultation is open until June 2025, and charities are encouraged to review the proposed amendments and submit responses. Given the scale of these changes, it is essential for organisations to engage with the consultation process to ensure that the final SORP reflects the practical realities of charity finance and governance.

For more guidance:

Charities SORP, Application guidance for charity accounting

Exposure Draft SORP 2026

Preparing for the next Charities SORP: practical steps you can take now