Charities SORP – changes that charities need to prepare for now

The FRS 102 (Financial Reporting Standard), published by the Financial Reporting Council (FRC), was revised in March 2024. The Charities SORP, which sets out requirements and recommendations on financial accounting and reporting for charities, is in the process of being updated to reflect the changes brought in by FRS 102. The draft updated SORP has been submitted to the FRC for approval, and a public consultation on the draft will be launched this month. The updated SORP is expected to come into force from 1 January 2026. 

There are two significant changes in FRS 102 that will be applicable to charities and will be introduced as new requirements in the updated SORP. The changes relate to lease accounting and revenue recognition and charities need to prepare now for the changes, and seek professional advice where required.

Lease accounting

Prior to March 2024, FRS 102 allowed charities to account for operating leases as an expense. The new FRS 102 requires charities to account for most operating leases on the balance sheet. FRS 102 has moved to this approach in order to align more closely with international accounting standards. As a result, charities that lease assets will see an increase in assets and liabilities on the balance sheet.

There will also be changes to how a charity presents expenses relating to the lease in the statement of financial activities. It is anticipated that this may be challenging for charities to understand and to implement the required changes, as well as introducing additional costs for charities. Charities should consider how the changes will impact them and apply the changes as necessary to all leases.

Revenue recognition

The updated FRS 102 introduces a five-step revenue recognition model for income from exchange contracts, which means that charities will need to recognise income from exchange contracts differently.  Charities will need to carefully assess their revenue recognition accounting policies to ensure that they are compliant with the new requirements.