Summary of FRSSE Charity SORP
Changes between SORP 2005 and FRSSE SORP
Format of accounts:
Module 1 - Changes to the Trusteesí Annual Report
The requirements for the Trustees’ Annual Report vary based on the size of the charity. These criteria are different to the eligibility limits to those determining which SORP to follow. A charity can be classed as large but still follow the FRSSE SORP.
Large charities are those that are subject to statutory audit under charity law. This means they fit the requirements of:
• Gross income exceeds £500,000 or
• Gross income exceeds £250,000 and total assets exceed £3.26m.
Changes from SORP 2005 that affect all charities are:
• All trustees must be listed; the maximum of 50 has been dropped.
• Must disclose any policy for holding reserves, and now must disclose any decision to not hold reserves, with reasons.
Changes from SORP 2005 that affect larger charities are:
• Must provide explanation of social investment policies and provide an explanation on how programme related investment contributed to the achievement of the objectives
• Explanation of the financial effect of significant events.
• Statement on risk management adjusted to description of principal risks and a summary of plans for managing them.
• Must disclose remuneration arrangements for key management.
Module 4 - Statement of Financial Activities (SoFA)
The basic structure remains the same, however the number of headings within the SoFA has been reduced. Many of the headings have been renamed and a full list of the headings can be found on page 6 of Helpsheet 2 on the Charities SORP website http://www.charitysorp.org/about-the-sorp/helpsheets/
• Comparatives are required for all columns in the SoFA, by either additional columns or notes to the accounts.
• Gains and losses on investment assets be excluded from total for ‘net income/expenditure’.
• Separate disclosure of exceptional items based on size or incidence.
• Costs of a ‘fundamental reorganisation or restructuring that has a material effect on the nature or focus’ of a charity must be disclosed.
• Charities with an existing policy of capitalising data capture costs can continue.
Module 10 - Balance Sheet
There have been no substantive changes to the balance sheet in the FRSSE SORP.
• Intangible fixed asset revaluations are not allowed.
• Capitalised goodwill has a maximum life of 20 years.
• Under FRS102, property let and occupied by another group undertaking, is not excluded from investment property.
• For contingent items, disclosure of amounts regarding capital expenditure are required.
Module 14 - Cash flow Statements
The cash flow statement is optional and its format is still based on the old GAAP and has three sections: cash generated from operating activities, cash flows from other sources and application of cash.
Accounting Policies and Definitions
Module 2 - Fund Accounting
The classification of funds as unrestricted, restricted and endowment funds remains the same. The new SORP requires the transfer between funds line to net to nil. References to loans between funds have been removed and now non-temporary transfers must be between funds of similar purpose.
Module 3 - Accounting Policies, Policies, Concepts and Principles
• Trustees are required to assess going concern.
• Individual accounting policy changes are elaborated on in their own modules.
Module 5 - Recognition of Income
The changes from SORP 2005 are:
• Disclosure of deferred income is only a ‘should’.
• It is now required that income should be recognised when it is ‘probable’ rather than ‘virtually certain’ as it was before.
• In some circumstances income from contracts can be classified as restricted income.
• More guidance now given on time related conditions that may prevent income recognition.
• More guidance also on income recognition from wills and legacies.
• Now required that extended credit terms be included in calculation of present value of receivable income.
Module 6 - Donated Goods, Facilities and Services Including Volunteers
Both SORPs have the same approach for the recognition and measurement of donated goods, facilities and services, except donated tangible fixed assets, with neither SORP allowing valuations of general volunteers.
Previously, income from receipt of donated goods for sale was recognised once sold or distributed, however now recognised at point of receipt at fair value. If this is impractical and/or costs of recognition at receipt outweigh the benefit to the users, then can be recognised at disposal. Donated tangible fixed assets are recognised at their current value. Valuations of general volunteers are not allowed.
Module 7 - Recognition of Expenditure
The SORP includes the more extensive application of the requirement to discount liabilities and provisions for the time value of money where the settlement is delayed by more than 12 months and the effect is material. The suggested discounts rates are using government bonds rates.
Module 8 - Allocating Costs by Activity in the Statement of Financial Activities
Only change is that governance costs are now included in support costs, as a separate component.
Module 9 - Disclosure of Trustee and Staff Remuneration, Related Party and Other Transactions
• The disclosure required for trustees also includes
• Trustee expenses must also include costs reimbursed and costs paid directly to third parties.
• All charities must now disclose the number of staff paid more than £60,000 in bands of £10,000.
Module 11 - Accounting for Financial Assets and Liabilities
Module 12 - Write-down of Assets
Values are assessed at net realisable value.
Module 13 - Post Balance Sheet Events
Module 15 - Charities Established Under Company Law
A strategic report is only required for medium and large companies so is not included in FRSSE SORP, however is required in FRS102 for those UK charitable companies of correct size. FRSSE also does not refer to the fair value reserve.
Module 16 - Presentation and Disclosure of Grant-Making Activities
The new SORP requires that institutional grants are detailed in the notes to the accounts and no longer permitted in a separate publication but does allow it to be on the website if conditions are met in the Trustees’ Annual Report.
Module 17 - Retirement Benefits/Retirement and Post-Employment Benefits
Requirements for defined contribution remain the same. However where a charity has a multi-employer benefit pension scheme, and is asked to make more contributions and its share of any actuarial deficit can not be identified, FRSSE SORP allows continued use of existing accounting policy whilst FRS102 SORP requires present value calculations of additional repayments to be recognised as a liability. FRS102 SORP disclosures require greater detail than FRSSE SORP.
Module 18 - Accounting for Heritage Assets
Previously SORP 2005 had a policy of recognition and measurement at cost or valuation. The new SORP allows continued use of current practice or current practice if no existing precedence.
Module 19 - Accounting for Funds Received as Agents or Custodian Trustee
Only change is new guidance on consortium arrangements.
Module 20 - Total Return (Investments)
More detailed explanation of the accounting treatment of investments in permanently endowed funds on a total return basis.
Module 21 - Accounting for Social Investments
The new SORP introduces a new class of investments: social investment. This covers ‘programme related investments’ which have the same definition as SORP 2005. There is also a new sub class of investment called ‘mixed motive investments’ which is an investment made both to further aims and generate returns.
The new SORP states that charities may use the cost model for concessionary loans. Recognition of social investments in ordinary or preference shares at cost or market value is required.
Module 22 - Accounting for Charities Pooling Investment
The new SORP provides the same new guidance on reporting of pooling of investments and sets out guidelines for that area for charities established as investment funds.
Module 23 - Accounting Branches, Charity Groups and Combinations
A flow chart is provided to identify modules associated to particular combinations.
Modules 24 - Accounting for Groups and the Preparation of Consolidated Accounts
Charities are allowed to continue with existing policies provided they reflect accepted practices. Otherwise charities should follow the current practice which provides clarification on charity combinations and their treatment. An interest acquired in a charity is treated as a gain or a loss or a merger (if conditions are met). One-sided transfers are not permitted so acquisitions cannot be treated as such. It is assumed goodwill has a maximum life of 5 years and negative goodwill on acquisition is treated as a gain in the SoFA of the year of acquisition. Also charities must disclose particulars of negative and positive goodwill.
Module 25 - Branches, Linked or Connected Charities and Joint Arrangements
The new SORP specifically excludes incorporated charities from being treated as branches. They are treated as subsidiaries within group accounts, whether they are linked or connected or neither; and not in individual accounts as a branch.
Modules 26 - Charities as Subsidiaries
There is new guidance provided.
Module 27 - Charity Mergers
The new SORP sets out criteria for mergers and when charity reconstructions can be treated as such.
Module 28 - Accounting for Associates
As with other modules, continued use of existing policies is allowed or use of current practices. The main change is that the current practice is now, a rebuttable presumption, that charity’s interest in associates is calculated by voting rights.
Module 29 - Accounting for Joint Ventures
Allowed use of existing practice or current policies. The current policy now requires the use of ‘equity method’ of accounting for joint ventures. The effect of this method is to show a charity’s share of the net income/expenditure as a single line in the SoFA and share of net assets in the balance sheet. Previously the gross equity method was required.
Date: 24th November, 2014
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