Sue Plumb, charity and not-for-profit specialist at Haines Watts Swindon gives her top tips for charity accounting.
Did you know two new Statements of Recommended Practice or SORPs for charities have been published recently? This may sound extremely dull but it’s essential charitable organisations know about this and take appropriate action.
The new SORPs were needed due to changes in UK accounting practices. These now provide a comprehensive framework for charity and not for profit entities to follow.
Both SORPs apply to reporting periods beginning on or after 1 January 2015. While some charities will have a December year end, the majority will have March year ends so the first set of accounts affected by these changes will be for the year to March 31 2016. The two new SORPs are:
• For charities which cannot take advantage of using small entity reporting due to their size, (referred to as FRS 102 SORP).
• For charities which do meet the criteria for using small entity reporting ie. Small charities (referred to as the FRSSE SORP).
What is a small charity?
To explain, a small charity must meet at least two of the following criteria:
• Total Income less then £6.5m
• Gross Assets less than £3.26m
• Less than 50 employees
Small charities can choose to adopt either SORP, however those not deemed to be small should follow FRS 102 SORP.
How important is this?
For most charities, and in most areas of the accounts, the changes introduced will not be too significant.
However for some larger and more complex charities they could be. These changes will impact the disclosure, presentation and terminology used in the accounts as a minimum. However it may also impact accounting treatment and lead to changes in the accounting policies adopted by charities.
Changes have been introduced that require more disclosures in the Trustees’ Report such as the charity’s risk, reserves and remuneration and social investment policies.
In terms of accounting treatment one of the key changes introduced by the FRS 102 SORP is how employee benefits are accounted for. Employee benefits, such as holiday pay, will be recognised as a cost as entitlement to the benefit is ‘earned’. This will mean any holiday entitlement not taken at the year end may need to be provided for as an accrued cost going forward.
Need help to understand these changes?
Both SORPs (and various help sheets) are available on a new charity SORP website: www.charitysorp.org or you can contact me, Sue Plumb, specialist charity and not-for-profit partner at Haines Watts on 01793 533838, email firstname.lastname@example.org