The Statement of Recommended Practice (SORP) for charities in the UK is a crucial framework that guides the preparation of financial statements and annual reports for charitable organisations. This framework ensures that charities present their financial information transparently and consistently, maintaining the accounting standards.
What is charity SORP?
The SORP provides detailed accounting and reporting recommendations and requirements for charities. It is designed to help charity trustees meet their legal obligations to produce accounts that give a true and fair view of the charity’s financial activities. The SORP is periodically updated to reflect changes in accounting standards and charity law.
Key Objectives of SORP
- Transparency: Ensures that the financial statements of charities are clear and understandable to stakeholders, including donors, beneficiaries, and regulators.
- Consistency: Promotes consistency in the way charities report their financial activities, making it easier to compare financial information across different organisations.
- Accountability: Helps trustees demonstrate how they have managed the charity’s resources and fulfilled their fiduciary duties.
Who Must Follow SORP?
In the UK, all charities must adhere to the SORP, except those with an income of £250,000 or less that prepare receipts and payments accounts.
Key Components of SORP
- Trustees’ Annual Report: This report provides an overview of the charity’s activities, achievements, and performance during the financial year. It includes information on the charity’s objectives, strategies, and the impact of its work.
- Financial Statements: These include the statement of financial activities (SOFA), balance sheet, cash flow statement and the notes to the accounts. The financial statements must be prepared in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102).
- Fund Accounting: Charities must categorise their funds based on their nature and purpose, distinguishing between unrestricted, restricted, and endowment funds.
- Specific Topics: Provides guidance on specific areas such as fundraising costs, related party transactions and the treatment of endowment funds.
Recent Updates to SORP
The latest edition of the Charities SORP (FRS 102) was published in October 2019 and applies to reporting periods starting on or after 01 January 2019. It includes updates to reflect changes in accounting standards and offers additional guidance on areas such as the reporting of grants and donations, the treatment of investment gains and losses, and the presentation of comparative information.
What next?
In conclusion, adhering to the Charities SORP (FRS 102) is essential for UK charities to maintain high standards of financial reporting. By categorising funds appropriately and following the latest guidelines, charities can ensure their financial information is transparent and consistent.
If you need assistance with charity SORP, accounting, or reporting, please don’t hesitate to get in touch with Charity Partner, Shona Munday. Our team has the expertise to help you navigate these requirements effectively.
