UK: An Introduction To The Education Statement Of Recommended Practice (FRS 102)

Last Updated: 26 May 2015
Article by Subarna Banerjee


This document sets out a summary of the changes that will arise from the implementation of the Education SORP. The SORP is supplementary to FRS 102 and, therefore, a good working knowledge of this standard is important.


FRS 102 and the 2015 SORP are effective for periods commencing on or after 1 January 2015. Typically, therefore, for a college or university with a July year end, the first set of financial statements under the new framework will be for their 31 July 2016 year end. Comparatives as at 31 July 2015 will need to be restated and an opening balance sheet, as at 1 August 2014, will need to be prepared. This is known as the transition date.


Statement of Comprehensive Income (SCI)

  • Movements in the fair value of unhedged financial instruments should be reflected above the 'surplus for the year' line in the SCI.
  • Unrealised surpluses or deficits on the revaluation of properties, actuarial gains and losses in respect of pension schemes and changes in the fair value of hedged financial instruments are reflected below 'surplus for the year' but included within 'total comprehensive income for the year'.

Balance sheet

  • Government grants accounted for under the 'accruals model' are disclosed within 'accruals and deferred income' within creditors rather than disclosed on the face of the balance sheet.
  • Designated reserves are not permitted to be disclosed within the balance sheet.
  • There are a range of disclosures that will affect the balance sheet in relation to financial instruments. These are discussed further overleaf.


An institution's assets, which are used to further its objects, should be disclosed as property, plant and equipment. Other properties should be disclosed as investment properties.

There is an option to hold property, plant and equipment at cost or valuation. Upon transition, institutions can use a valuation as 'deemed cost'.

At each year end, an institution must assess whether there is any indicator of impairment. The SORP then introduces a staged process in terms of calculating potential impairment. In summary, the 'recoverable amount' of an asset must be compared to its 'carrying value'. If the 'recoverable amount' is lower than the 'carrying value', an impairment charge must be made. Detailed guidance for determining the 'recoverable amount' is included within the 2015 SORP.

Where assets are held as investment property, they are disclosed at fair value through income and expenditure.


Many institutions operate an arrangement whereby a private contractor may develop, operate and maintain infrastructure, such as student accommodation.

The criteria used to assess whether such arrangements should be included within an institution's balance sheet are different under FRS102 and the Education SORP when compared to the previous accounting framework. It is considered that more of these arrangements will need to be included 'on balance sheet'.

The detailed criteria and additional guidance are included within the 2015 SORP.

Institutions will need to review each arrangement carefully to assess whether they should be included within an institution's balance sheet.


Under the SORP and FRS102, institutions have a choice between accounting for government grants relating to capital projects between the 'accruals model' and the 'performance model'.

Under the accruals model, any grants received are reflected as deferred income and recognised over the useful life of the related asset.

Under the performance model, grants are recognised 'when the performance conditions are met', such as when a building comes into use.

Once a policy choice is made, it must be applied consistently across each class of grant.

Non-government grants must be accounted for under the performance model.


Financial instruments will need to be categorised between 'basic' (such as cash, debtors, creditors and straightforward investments) and 'non-basic' (such as swaps, options and forward contracts). The accounting treatment for 'basic' financial instruments does not change significantly, however, 'non-basic' financial instruments will need to be measured at fair value at each balance sheet date.

This will affect the net assets of the college or university and may make reported results more volatile.

Under FRS 102, insitutions that use financial instruments to hedge financial risks may be able to adopt 'hedge accounting'. This would reduce the volatility of the results of the institution.


Similar to the current accounting framework, employers which are part of such schemes, such as the Universities Superannuation Scheme, must account for their share of assets and liabilities of the scheme. If this information is not available, an employer must account for such schemes as a defined contribution scheme. However, under the new framework, if such an employer has agreed to fund a deficit relating to past service, it must also include the net present value of this liability in its balance sheet.


The definition of related parties has been expanded to include key management personnel. As a result, the total remuneration and expense reimbursement for those staff managing a college or university must be disclosed in the financial statements.


Under the new accounting framework, a holiday pay accrual must be included in the financial statements if it is material. This represents a change to current accounting standards in that such an accrual is optional. The accrual is accounted for by reference to the amount of untaken holiday at the year end, multiplied by the rate of pay for that individual.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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