An exposure draft of the charities SORP was issued in July 2013. This exposure draft incorporates the necessary changes arising from the publication of FRS102.

While many RPs have charitable status (even if not registered with the Charity Commission) they do not have to follow the charities SORP, as the RP SORP is more specific. However, it will be applicable to RP groups which incorporate non-RP charitable subsidiaries. These subsidiaries will need to follow the charities SORP.

Although the SORP is only an exposure draft and therefore it may change, I do not expect that there will be fundamental changes following the completion of the current consultation exercise. While in many areas the charities SORP simply regurgitates requirements of charity law and FRS102, in certain areas it imposes more specific requirements.

Income recognition

Under the existing SORP, income is recognised when it is measurable, when the charity is entitled to receive it and when it is virtually certain to be received. The new SORP replaces 'virtually certain' with 'probable'.

This is most likely to make a difference for income derived from legacies and pledges – under the new SORP income recognition may be advanced.

Statement of financial activity

The Statement of Financial Activity (SoFA) presentation is specified and is simplified from the previous SORP with the main income headings now being:

  • donations
  • earned from charitable activities
  • earned from other activities
  • investment and other.

Within expenses, 'governance costs' are no longer with us and will be classified within support costs.

For larger charities, the SORP requires the SoFA to be analysed by activity.

Social investments

The concept of social investment is picked up on by the new SORP. This is a relatively new classification of investments on which the Charity Commission produced guidance in their publication CC14. This recognises that there is a category of mixed motive investment that is neither purely financial nor purely in the furtherance of the charity's activities. Here the SORP builds on the public benefit exemptions available under FRS102.

Recognition of Government grants

This is perhaps the most significant area for RPs.

Under FRS102, there are two methods for recognising Government grants.

  1. The total grant is recognised as part of income once the recognition criteria have been met; or
  2. The grant is taken to the balance sheet (as a creditor) and released to income as the related costs are incurred or over the life of the associated asset.

I understand that the RP SORP (which has yet to be issued as an exposure draft) will require that RPs adopt option 2 – effectively continuing with the current position, albeit that the grant received and not used will be treated as a creditor and will be released to the income statement over a different period.

The RP SORP (assuming the exposure draft is unchanged when finalised) will require that RPs adopt option 2 if properties are carried at cost – effectively therefore, where a charitable subsidiary receives Government grants, it will need to either follow the RP SORP rather than the charities SORP or have an accounting policy divergent from the group policies. In the latter case, there would need to be a consolidation adjustment to align the policies.

It should be noted that this applies only to Government grants and not grants from – for example – other charities. Under both the RP SORP and the charities SORP option 1 will need to be followed for non-Government grants.

Financial instruments

Throughout, the charities SORP is designed to be easy to read and accessible and largely it is successful in these aims. However, financial instruments is potentially the most complex area of FRS102 and therefore incompatible with such an approach. In this area I consider that the SORP offers little guidance of substance.

Much of the new charities SORP is similar to the existing SORP, but as with FRS102, there is a significant learning curve and forward planning is vital to successfully implement the necessary changes.

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