Back in February, the Charities SORP Committee published draft SORP Update Bulletin Two, with a short consultation period ending on 4 April. The purpose of the Update Bulletin is to apply the Financial Reporting Council’s (FRC) FRS 102 triennial review amendments to the charity sector.

Here at Insight Training, we’ve been gauging delegate response during recent charities update courses. Here are our main observations:

  1. Relaxed rules on investment properties let intra-group

This change removes the need to account for properties let intra-group at ‘fair value through P&L’. Although the cost of fair valuing investment property does worry those involved with charity financial statements, this seems to be an issue which will have more impact in the for-profit sector.

  1. Removal of the ‘undue cost and effort’ exemption for investment property

This seems to be troublesome for some. However, it is important to remember that, under the new rules, the investment property part of ‘mixed use property’ will only have to be accounted for at fair value if the rented portion could be sold separately. Also, where an investment property does exist, a third-party valuation isn’t essential – though it will need to stand the test of audit or independent examination scrutiny.

  1. New rules for charitable groups

These deal with the accounting treatment required where a subsidiary distributes profits to its parent charity, previously published in FRED 68. We covered this in an earlier blog. Some loathe the requirements – but on courses this Spring delegates seem to have been reasonably accepting of what the FRC is trying to achieve. This change can be early adopted in isolation.

  1. Net debt note

The requirement for this note to the statement of cash flows is re-introduced by the triennial review amendments. Although not impossibly hard to produce, feedback here has focussed on the fact that it’s one more thing to explain to trustees who might not be particularly ‘financial statements savvy’.

  1. Comparatives

Tucked away in appendix three of the Update Bulletin is a reminder that comparatives are already required for all amounts included in a set of charity accounts – whether the requirement has been imposed by FRS 102 or the SORP. This might be challenging. Are full comparatives always currently included for the activity-based analysis of income and expenditure required for non-small charities? I’m not sure that they are.

  1. Disclosure dispensations

Because charities can’t apply FRS 102 Section 1A, one or two of the disclosure dispensations afforded by the triennial review might help them – notably the reduced amount of detail that will be needed in the much loathed ‘paragraph 11.41 note’ in FRS 102.

  1. Academies need apply

Academies do, of course, apply the Charity SORP so the changes will apply to them. None of the recognition and measurement changes are likely to impact much on Academies, though some of the disclosure changes may.

  1. Early adoption

The new rules regarding the accounting treatment where a subsidiary distributes profits to its parent charity can be early adopted in isolation. Otherwise early adoption is required on an all or nothing basis.

Unless the changes concerning investment property accounting prove particularly advantageous to a charity, there is no particular benefit in early adoption – in which case many will leave it until accounting periods beginning on or after 1 January 2019, when the changes become mandatory.

  1. An opportunity missed?

The mood music on charities update courses still seems to be that, for relatively small charities preparing accounts on the accruals basis, the financial reporting regime (including the SORP) is very onerous. The SORP Committee did consult last year on substantive changes which might have addressed some of these concerns. However, the consultation did not lead anywhere in the short term and substantive changes to the SORP do not now seem likely until accounting periods beginning on or after 1 January 2022.

  1. Bigger issues

Without doubt, the bigger issue on charities update courses has, in recent months, remained related party transactions, where the SORP rules are very tough,

With new rules on ‘Reporting Matters of Material Significance’ requiring auditors and independent examiners to ‘blow the whistle’ in the event of a related party transaction being inadequately disclosed or a conflict of interest inappropriately managed, this is indeed an issue which should occupy everyone’s thoughts more in the short term.

Update Bulletin Two can be downloaded from

Full details of ‘matters of material significance’ can be downloaded from:

Peter Herbert, April 2018

charity April 2018