Charity Update: Changes to the Charity SORP (FRS102)
As widely reported, in February 2018 the joint SORP-making body issued an Exposure Draft of Update Bulletin 2 to the Charities SORP (FRS102) as a result of the triennial review of FRS 102 by the Financial Reporting Council (FRC).
A number of changes to the existing SORP have now been made and are to be found in the addendum to the existing SORP (Bulletin 2). The main changes are:
Clarification of the existing comparative information requirements:
The FRC has stated that “comparative information must be provided for all amounts presented in the current period’s financial statements, which include the notes’. Charities must now provide comparative information for all amounts in the accounts, and the notes to the accounts, unless otherwise directed in FRS102. In practice this now means that the movement of funds and analysis of net assets between funds notes must now be provided for the current year and the comparative year in full. Critics argue this will make the financial statements more cluttered and confusing however the requirement was confirmed in the release of the final version of the Bulletin.
Amendments to the way that Gift Aid is accounted for
Gift aid to a charity by a subsidiary company is now considered to be a distribution by the subsidiary rather than a cost. In doing so, the concept of a “constructive obligation” was removed meaning gift aid cannot be included in liabilities at the year-end unless a legal obligation exists (e.g. such as through a Deed of Covenant). There is further guidance in the FRS for trading subsidiaries, in that the subsidiary will only need to account for the tax it expects to pay. So if all the profit is gift aided to the parent charity within nine months of the year end, no tax liability will be expected and therefore won’t need to be provided in the subsidiary accounts.
The removal of “Undue Cost or Effort”
Previously this could be called upon to excuse non-compliance, with 5 exemptions having been removed from the original SORP for example reporting on depreciating major components of an asset, where property is owned by a charity in a group and rented to another group entity, and where charities hold mixed use property.
The addition of net debt reconciliation to a cash flow statement
Reconciliation of net debt must now be included as a note to the statement of cash flows. The FRC have included an example reconciliation as a guide, contained within Bulletin 2, with the objective being that sufficient detail is provided to allow users to clearly identify the balances.
The standards for accounting for investment properties in a charities individual financial statements have also been changed. It is now a matter of choice for charities to measure the property value at cost (less depreciation and impairments) or at fair value.
Other changes include rules surrounding charity mergers, the removal of the requirement to disclose stock recognised as a debt, and risks arising from financial instruments. Charities are advised to fully familiarise themselves with Bulletin 2.
Who does this affect?
The amendments apply to all charities in the United Kingdom and Republic of Ireland that adopt FRS102.
When do the changes take effect?
Previously, it was anticipated that the changes would take effect immediately on the date of the publication of the bulletin, i.e. 5th October 2018, however this has been extended to reporting periods beginning on or after 1 January 2019. Charities may choose to adopt the amendments early (unless precluded from doing so by regulations or law) providing all amendments are adhered to at the same time.
What else do I need to consider?
The changes above will mean that that when preparing the accounts, Charities will now need to consult with three separate guides; the original SORP, Update Bulletin 1, and now Update Bulletin 2, the latter of which can be found here.
If you require any further clarification surrounding the addendum to Charities SORP, please contact our Charities team below: