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Financials
The charity sector is witnessing a significant shift with the launch of a public consultation on the next version of the Statement of Recommended Practice (SORP), which outlines the accounting and reporting framework for charities. A key proposal within this updated framework is the introduction of a three-tiered system based on income levels, aiming to ensure proportionate reporting while enhancing transparency for stakeholders. This development comes as part of broader updates that reflect changes to Financial Reporting Standard (FRS) 102, applying to charities across the UK and Ireland.
SORP plays a crucial role in maintaining consistency and transparency within the charity sector, making it easier for donors, beneficiaries, and the public to understand and compare charity accounts. It sets out sector-specific requirements on top of general accounting standards like FRS 102, ensuring that charities can maintain high levels of trust and accountability.
The SORP-making body, comprising the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator (OSCR), and the Charity Commission for Northern Ireland, has been working closely with the SORP Committee and various stakeholders to develop these updates.
One of the most notable proposals in the new SORP is the introduction of a three-tiered system for accounting rules, tailored to the size of charities based on their gross income:
This tiered approach is designed to ensure that smaller charities are not burdened with overly complex reporting requirements, while larger charities provide more detailed information to stakeholders. The system aims to meet the diverse needs of users while promoting efficiency in reporting.
Alongside the three-tiered system, other significant changes are proposed to further enhance transparency and accountability:
Advanced Reporting Areas:
Impact Reporting: Providing clearer insights into the impact of charitable activities.
Reserves and Going Concern: Strengthening financial sustainability and operational continuity.
Volunteers: Acknowledging the role of volunteers and their contribution to charities.
Environmental, Social, and Governance (ESG) Reporting:
Introducing proportionate reporting for ESG issues to align with growing stakeholder expectations for sustainable practices.
The consultation on these proposals is open until June 20, 2025, with the final version of the updated SORP expected to be published in autumn 2025 and effective from January 2026. The feedback from this consultation will be crucial in shaping the final version, ensuring that it meets the evolving needs of charities and their stakeholders.
Leaders from key charity regulators have emphasized the importance of this consultation:
David Holdsworth, CEO of the Charity Commission for England and Wales, highlighted the role of transparency and accountability in fostering public trust, encouraging wide participation in the consultation.
Katriona Carmichael, CEO of OSCR, emphasized the need for charities to stay updated with modern financial reporting practices and to contribute to the consultation process.
Frances McCandless, CEO of the Charity Commission for Northern Ireland, noted that while FRS 102 remains unchanged, now is the time for charities to prepare for the new reporting standards.
The updated SORP proposals are significant for several reasons:
Transparency and Trust: Enhancing transparency across the charity sector is crucial for maintaining public trust. By providing clearer and more comparable financial information, charities can demonstrate accountability and stewardship of resources.
Proportionate Reporting: The tiered system ensures that reporting requirements are aligned with the capacity and resources of charities, preventing undue burden on smaller organizations while ensuring larger ones provide detailed information.
Alignment with Modern Expectations: The inclusion of ESG reporting and advanced impact metrics reflects the growing demand for sustainable practices and measurable outcomes in the charity sector.
Support for Modern Financial Reporting: The updates align with recent changes to FRS 102, ensuring that charities are well-equipped to manage financial complexities and comply with regulatory standards.
With the implementation of the new SORP scheduled for January 2026, charities are advised to take proactive steps:
Review Current Practices: Assess existing accounting and reporting methods to identify areas that need adjustment based on the proposed changes.
Engage with Stakeholders: Participate in the consultation process and engage with relevant stakeholders to ensure that the final version meets their needs.
Develop a Transition Plan: Start planning how to implement the new standards, particularly focusing on income recognition and lease accounting.
Stay Informed: Regularly check for updates from the SORP-making body and regulatory agencies to stay abreast of developments.
The launch of the new Charities SORP consultation marks a pivotal moment for the sector, offering an opportunity for charities, stakeholders, and regulatory bodies to collaborate in shaping the future of financial reporting and transparency. As charities prepare for these changes, embracing innovation and accountability will be key to maintaining public trust and ensuring a robust and resilient charity sector.
By engaging with this consultation and embracing the proposed reforms, charities can position themselves for success in the evolving landscape of financial reporting, ultimately enhancing their impact and contributions to society.
