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UK Generally Accepted Accounting Practice (GAAP) has changed for accounting periods beginning on or after 1 January 2015. The old Statement of Recommended Accounting Practice: Accounting and reporting by charities (popularly known as SORP 2005) has been superseded by a new framework. John Maddocks provides an overview of the key changes.
From the viewpoint of charities, the new GAAP is comprised of three standards:
The role of SORPs is to provide application guidance to help practitioners prepare accounts under GAAP. It follows that when GAAP changes, a new SORP is required. Any charity can follow the new FRS 102 SORP, with smaller charities being able to opt to follow a SORP based on the FRSSE for one year only.
It may seem obvious to move straight to the full FRS 102 SORP, however as the FRSSE SORP is based on old GAAP it may provide a half-way house for smaller charities wishing to minimise the impact of the changes for 2015/16 accounts. This article concentrates on FRS 102 SORP, but also provides information on the one year FRSSE option to allow charities to make an informed choice.
The new SORP incorporate a number of important changes including:
Many of the SoFA headings and have changed. Here are some examples of changes in income headings:
There are similar changes to expenditure headings. One important change is the removal of ‘governance costs’ from the expenditure list. Governance costs are instead allocated across the charity’s activities as a part of support costs.
‘Gains/losses on investment assets’ has moved up the SoFA and now sits above the net income/(expenditure) line and is shown as ‘Net gains/(losses) on investments’.
It is worth noting that the new SORP requires comparative figures for the previous reporting period for all of the SoFA columns, e.g. restricted, unrestricted and endowment columns; not just the total column. This comparative information can be shown either on the face of the SoFA or in the notes.
The Charity Commission has produced two help sheets to assist charities to understand the changes. These are available at Charities SORP.
Help-sheet 1 compares paragraphs in SORP 2005 with the FRS 102 SORP
Help-sheet 2 considers the key differences in the areas of accounting policies.
The main changes include:
For a full summary of the differences, please refer to the help sheets on Charities SORP.
Because of previous uncertainties regarding the future of the FRSSSE a decision was taken to develop two charities SORPs: one based on FRSSE and one based on FRS 102. Those charities that fulfil two of three eligibility criteria have the option of adopting the FRSSE SORP:
The FRSSE is based on old GAAP whereas FRS 102 is new GAAP and is based on the IFRS for Small and Medium-sized Entities (IFRS for SMEs). Charities now face a very clear choice for accounting periods beginning on or after 1 January 2015. However, the FRSSE is being withdrawn and so this will only be an option for one year, after which all charities following the SORP will adopt the FRS 102 version.
The main differences between the FRSSE and FRS 102 SORPs are considered in help sheet 3. The main differences include:
The two changes that affect all charities are:
Changes that affect only larger charities include:
The new SORP together with accompanying help sheets was published in mid July 2014 and is found on the dedicated charities SORP micro-site Charities SORP.
CIPFA has produced disclosure checklists for both SORPs:
FRS102 SORP disclosure checklist
FRSSE SORP disclosure checklist
Hard copies of the SORPs are also available from CIPFA:
FRS 102 SORP
John Maddocks is a Technical Manager at CIPFA
*NHS charities should note that new GAAP is not the same as the applicable Financial Reporting Manual (iFREM) as the iFREM is an interpretation of the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. Therefore, if consolidating a linked charity into the accounts of an NHS body, you may need to make adjustments, where necessary, for group accounting policies based on the iFREM.