|12 Feb 2024
|Charity Sector News
Since the heads of terms of the Charities Amendment Bill 2022 were published in April 2022, the Charities Regulatory Authority (CRA) has been proactive in providing guidance to charities. Their recently released document, titled "Overview of the proposed Charity Financial Accounting Regulations and Charities SORP," offers valuable insights into the upcoming changes to the Charities Act.
Accessible for download on the CRA website, this guidance document serves as a roadmap for charities, allowing them to anticipate and prepare for the impending regulatory adjustments. Crucially, it outlines the purpose of the Accounting and Reporting Regulations and elucidates how these regulations will align with the forthcoming Bill.
It is imperative for charities to familiarize themselves with this guidance as it will facilitate strategic planning and ensure compliance with the evolving regulatory landscape. Moreover, understanding the interplay between the Bill and the Accounting Regulations is essential for seamless transition and effective implementation of the legislative changes.
FRS 102: Changes in Progress
Financial Reporting Standard 102 (FRS 102), the cornerstone of accounting frameworks in the UK, is currently undergoing a significant overhaul by the Financial Reporting Council (FRC). Draft revisions, open for public comment until April 30, 2023, encompass various aspects including revenue recognition and lease accounting.
Charity SORP supplements FRS 102, providing additional presentation and disclosure requirements tailored for charities. Compliance with FRS 102 remains paramount for charities, followed by adherence to the specific SORP guidelines.
Charity SORP: A Complete Overhaul
In tandem with FRS 102 revisions, Charity SORP and other SORPs are undergoing comprehensive updates by the SORP making body in the UK. These changes aim to enhance reporting practices and transparency within the sector.
The SORP committee is particularly focused on assessing the impact of FRS 102 revisions, notably on lease accounting. Anticipated changes will necessitate all leases to be reflected on charities' balance sheets, aligning their accounting treatment more closely with International Financial Reporting Standards (IFRS).
Expectations are high for updates to SORP disclosures, reflecting the evolving regulatory landscape and the imperative for greater transparency.
Challenges and Considerations
Despite strides toward improved standards, challenges persist, particularly concerning income recognition. The performance model mandated by SORP necessitates income recognition, potentially leading to surpluses in accounts and affecting future funding.
Furthermore, inconsistencies in setting performance conditions in funding agreements can complicate income recognition, creating anomalies in financial reporting.
While there are currently no plans to address these challenges in the latest version of SORP, proactive management and advocacy for clearer guidelines in funding agreements are essential for organizations.
As accounting standards continue to evolve, charities must remain vigilant and adaptable. Understanding the implications of FRS 102 revisions and Charity SORP updates is essential for ensuring compliance and maintaining financial integrity.
Stay informed, plan strategically, and embrace the changes ahead to navigate the complexities of financial reporting effectively. By proactively engaging with regulatory guidance and leveraging industry insights, charities can thrive in a dynamic regulatory environment.