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UKWe break down the benefits and drawbacks of three major changes within the new SORP for charities, with insight from industry experts on how the changes may affect organisations in Scotland, the Republic of Ireland, England, and Wales.
The Financial Reporting Council (FRC) has opened the public consultation period for the new Charities SORP. This comes with amended terms that better align with the FRS 102, the primary accounting standards in the U.K. and Republic of Ireland. The public consultation on the Exposure Draft will close on 20th June, and the final version of the SORP will be applicable for accounting periods on or after 1st January 2026.
If you want to learn more about how Xledger can support your Charity organisation with our powerful financial management software, click here.
Here are a few of the major changes outlined in the Charity SORP:
These changes are also to align the Charities SORPs with update requests from a 2021 FRC survey, but it remains to be seen whether these changes truly represent the view of trustees and U.K. charity stakeholders.
While speaking with Peter Hucker, CEO at Xledger U.K., Jakina Matthews, Head of Finance at MND, and Fiona Condron, National Head of Charities at BDO LLP, it was suggested that the tier system mainly relates to the Trustee’s annual report, rather than the statement of financial activities.
Benefit 1: Although micro-entities are not acknowledged under the new terms, these organisations can undertake “natural reporting” wherein they offer extra information in statutory reports about the influence of their organisation.
Benefit 2: The guidance confirms that tier 3 entities are already reporting on the correct aspects surrounding environmental & social governance (ESG) and impact reporting, meaning that tier 3 organisations can simply ramp up their efforts to continue being compliant.
Drawback 1: The tier system fails to offer guidance for very small charities, instead lumping them together with small charities, meaning that micro-entities will need to produce a huge number of reports to be compliant.
Drawback 2: The system is based on income rather than asset ranges, which disregards the reporting nuances of the large numbers of asset-based charities operating in the U.K.
“Charities larger than £15m (tier 3) are probably already complying with about 60-70% of the new terms laid out, so it is quite affirming for tier 3 organisations to see they are currently compliant with SORPs.”
Benefit 1: The SORP for charities only requires tier 3 organisations to report on ESG, which ensures that large entities avoid greenwashing or poor governance.
Benefit 2: Tier 1 & 2 entities are encouraged to report on ESG, but not mandated by law. This helps to promote good governance, particularly for growing tier 2 organisations that will soon move into tier 3.
Drawback 1: ESG reporting is costly and time-consuming. Annual reporting on ESG may become a tick-box exercise rather than a method of producing meaningful reports that work to signpost where an organisation’s carbon accounting, for instance, can be improved.
Drawback 2: The new draft doesn’t stipulate exactly what needs to be measured. Although this isn’t present in the commercial ESG statement of recommended practice, the draft would benefit from more clarity on what needs to be measured, and how.
“There may have been a missed opportunity to align extremely large charities within the same ESG corporate reporting requirements. This is likely to cause ambiguity around what the actual requirements will look like.”
Benefit 1: The new Charities SORP enables Not-For-Profits to utilise qualitative reporting methods, such as website and media testimonies, during reporting periods, so organisations can redirect time into making balance sheets and cash flow more compliant.
Benefit 2: The demand for more detailed impact reporting ensures that each organisation can outline why it operates. With better communication, confidence in your individual Not-For-Profit, and the wider charity sector, grows.
Drawback 1: The Charities SORP lacks worked examples, and this may lead to organisations providing too much qualitative data, drawing the focus away from mandatory financial statements applicable in the U.K.
Drawback 2: Impact work is often generational, so it may prove difficult for research charities to properly report on the organisation’s impact. A research grant may contribute to a significant impact 20 years after it has been logged in fund accounts, making the identification of immediate impact very difficult.
“Charities exist for their beneficiaries. The more we can encourage documentation on the great work that they do, the better.”
It’s important to note that the Exposure Draft will be updated to reflect the feedback given to the U.K. charity regulators during the public consultation period. Consider how the updated SORPs for charities will affect your organisation, and feedback appropriately.
To watch the full webinar, including the Q&A session, see below (if the video does not appear please click here).
Watch to discover:
Financial reporting for charities is complex and everchanging. As we look forward into 2025, here are some of the key changes you should be aware of to ensure your organisation continues to meet its reporting goals.
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