Article contributed by Baker Tilly, accountants.
With a new draft Statement of Recommended Practice (SORP) currently under review it looks like there will be some changes afoot for how charities will carry out their accounting and reporting.
From the 1st of January 2015, all charitable companies currently reporting under existing Generally Accepted Accounting Practice will have to report under the new FRS 102 or FRSSE and the new SORP.
The new SORP has been designed in a modular format to make following it easier. Because many charities rely on volunteers or non-professionals to carry out their accounting work a concerted effort has been made to make everything more readily accessible to the layman.
Charities following the new SORP will still report on their expenditure and income based on activity, but the categories have changed. There will now be four categories: Donations, Earnings From Charitable Activities, Earnings From Other Activities, Investments and Other Incomes.
Expenditure was previously organised into the headings of: Costs of Generating Funds, Charitable Activities and Governance Costs. Any governance costs must now be included in the heading of Expenditure on Charitable Activities and there are now two other categories, namely Cost of Raising Funds and Other Expenditure. The remainder of the Statement of Financial Activities remains unchanged from the earlier 2005 SORP.
One of the major criticisms of the last SORP has also been addressed, namely how charities deal with legacy income. The previous SORP had limited and vague guidelines leading to widely varying practices from charities. The new SORP has much more detailed guidance on how to handle these kinds of income.
Any charity that issues grants must now disclose this in their annual report to trustees or in the notes to their accounts. Previously this was allowed to be made in a separate publication but this concession from the 2005 SORP has now been removed.
This overhaul of the existing SORP is long overdue. Because the charitable sector relies so heavily on voluntary workers the changes are a real step towards making the accounting process more accessible to people other than professional accountants.
The modular approach makes the process easier to follow, and there is a possibility that in the near future charities will be able to tailor their SORP to their individual circumstances, which is game changing stuff. The inclusion of more detailed notes and guidance on many areas will also make things easier.
Although changes to charity accounting practices can often be something of a headache as procedures and systems have to change to accommodate them, the new charities SORP should be viewed positively.