The Financial Reporting Standard (FRS) 102 is undergoing revisions that will directly impact the Charities Statement of Recommended Practice.
Upcoming changes to FRS 102 and their impact on the charities Statement of Recommended Practice: Accounting and Reporting by Charities (the SORP).
Updates to FRS 102 are on the horizon following the most recent periodic review, therefore a new SORP has been developed to ensure consistency with these changes. Once finalised, the updated SORP is expected to be published in Autumn 2025 taking effect for financial periods beginning on or after 1st January 2026. It will bring key changes to how charities prepare their financial statements.
There are two major accounting changes:
- Revenue recognition: charities will need to apply a structured 5-step approach to recognising income, which may be challenging particularly for donations, grants and contracts. This may result in changes to how and when income is reported in financial statements.
- Lease accounting: the changes will require charities to recognise operating leases on balance sheet, with only short-term and low-value leases remaining “off balance sheet”. This will increase assets and liabilities and change the presentation of lease expenditure.
The proposed SORP plans to incorporate other changes to achieve sector consistency and proportionality, in particular moving to a 3-tier approach to reporting requirements based on size of charity.
What does this mean for charities?
While the fundamental principles of charity financial reporting remain, charities will likely need to adjust their accounting systems, update internal policies, and train staff on the new requirements.
Our advice
To ensure a smooth transition, we recommend that charities should take the following steps:
- Understand the new requirements: finance teams should familiarise themselves with the upcoming changes and identify areas of focus.
- Engage with auditors and advisors: consulting with auditors and financial advisors will help charities assess how the changes will impact their specific operations.
- Review income recognition policies: charities receiving grants, donations, or funding from multiple sources should evaluate their income recognition policies to ensure alignment with the new standards.
- Assess lease agreements and other financial commitments: with the changes in lease accounting, charities should review their lease portfolios and consider how this will affect financial reporting.
- Prepare for increased disclosure requirements: ensuring that financial statements include the necessary details will be crucial for maintaining transparency and regulatory compliance.
While the changes represent an evolution in charity financial reporting rather than a total overhaul, charities must be proactive to avoid last minute compliance challenges.
By planning ahead and integrating these updates into their financial reporting practices, charities can continue to provide clear, transparent and accountable financial information to regulators donors and stakeholders. Get in touch with a member of our team today to see how we can support you with these changes.
