Policies Update One Becomes Two: The new SORP explained

Nigel Davies, Technical Secretary to the Charities SORP Committee, explains more about the new SORP framework and the changes to look out for.

UK-Irish Generally Accepted Accounting Practice (GAAP) is changing with effect for accounting periods beginning on or after 1 January 2015. A new GAAP framework requires a new SORP. The existing Statement of Recommended Accounting Practice:

Accounting and reporting by charities (SORP 2005), will be superseded by a new framework of two SORPs.  In writing the new SORPs, care has been taken to respond to feedback from the charity sector.

Feedback included:

•Think small first and ensure the text clearly distinguishes requirements that apply to all charities from only those that apply to larger charities. Larger charities are those required to have an audit under charity law;

•Make a clear differentiation between what “must” be done to comply with the SORP, what “should” be done as a matter of good practice, and what “may” be done by way of extra illustration or as an option;

•Clearly distinguish between requirements imposed by the SORP from the requirements of accounting standards;

• Provide more explanatory text to help smaller charities understand what is required;

•Avoid unnecessary changes and so as far as possible ensure terminology has been kept consistent with that currently used rather than switching over to new GAAP terminology;

•Retain the columnar approach to the statement of financial activities (SoFA) but use simpler clearer headings for income and expenditure.

Why two new SORPs?

The draft version of a new charities’ SORP, issued for consultation from July to November 2013, combined guidance for applying the Financial Reporting Standard for Smaller Entities (FRSSE) and the new GAAP Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102).

We know that a significant minority of charities currently use the FRSSE and 88% of respondents to the consultation supported a solution that supported both FRSSE and FRS 102. However, subsequent developments have meant that splitting out the FRSSE is essential and so two SORPs are needed, with one for each standard.

The reasons for the separate FRSSE SORP are:

•A new Accounting Directive from the European Union means the longer-term future of the FRSSE is very uncertain;

•A number of respondents to the consultation advocated separating out the two standards

with separate SORPs, citing dissimilarities in terminology, definitions and accounting


•The text is clearer if reference is made to only one accounting standard.  Whilst any charity can follow the FRS 102 SORP, only those charities that fulfil two out of three eligibility criteria may adopt the FRSSE SORP. That said, over 98% of the sector would be eligible to follow the FRSSE SORP.

Charities now face a very clear choice for accounting periods beginning on or after 1 January 2015.

How has the SoFA changed?

For further details and information of these changes and how they will impact on Charities in Northern Ireland please contact Martin Crossland on 71 27 9876 for further details.

Last updated 1 year 5 months ago