Join in the four-month consultation on the new charities Sorp

The existing Sorp isn't as user-friendly for small charities as it could be, says Ray Jones

Ray Jones
Ray Jones

A four-month consultation on a new draft charities Statement of Recommended Practice will begin this week. The existing Sorp has been in place since 2005 and has stood the test of time well. So why do we need a new Sorp now? And what exactly will the Sorp mean for organisations that work in the charity sector?

The Financial Reporting Council, the UK's accounting standard-setter, issued a new Financial Reporting Standard, FRS 102, in March this year after a lengthy series of consultations. The charity sector has been involved in submitting its views on what should be in the new standard, and for the first time it will incorporate a set of rules expressly designed for public benefit entities.

Sorps are written in the context of accounting standards, so a new Financial Reporting Standard means the charities Sorp needed to be looked at afresh. The new draft Sorp has been developed by a committee that includes the Charity Commission and the Office of the Scottish Charity Regulator as well as experts from the charity sector.

By necessity, the Sorp is a technical document, but we recognise that the existing Sorp isn't as user-friendly for small charities as it could be. For that reason, we have adopted a 'think small first approach'. We have set the draft out in a modular format, with 15 core modules that apply to all charities and a further 15 modules dealing with particular transactions and structures - for example, social investments and mergers - that apply only to some. Within each module, we have also separately set out the requirements applying to smaller charities that have the option of sticking with the existing financial reporting standards for smaller entities.

We hope this approach helps the Sorp do its job - supporting good financial reporting. Good financial reporting should provide an account of the stewardship exercised by trustees over charitable funds, provide information that is useful to stakeholders, particularly funders and donors, and support trustees' own decision-making.

The importance to the public of financial reporting was made clear by research carried out by Ipsos Mori for the commission in 2012, which said that "how charities spend their funds is of key importance to levels of trust and confidence" and that "the overwhelming majority of people believe charities should provide the public with information on how they spend their money".

So getting a Sorp that works for the sector is vital, and getting your views is perhaps the most important step in making sure that happens. So please take part in the consultation by visiting the microsite we have developed for this purpose at www.charitysorp.org. The site explains how you can comment on the draft Sorp.

As part of the consultation, representatives from the Sorp committee will take part in events organised by sector umbrella bodies, professional institutes and accountancy firms in September and October. The microsite will advertise these events - I hope many charities will take part and join the debate about charity reporting.

Ray Jones is policy accountant at the Charity Commission

KEY POINTS

- An overhaul of accounting rules has been going on since 2004, carried out by the Accounting Standards Board and later the Financial Reporting Council.

- A new standard, FRS 102, is the result. Rules for smaller organisations are being brought in line with International Financial Reporting Standards, already followed by publicly listed entities.

- The new standard, which will govern how companies produce their accounts, will replace an existing standard, UK Generally Accepted Accounting Practice.

- The new standard contains elements specifically intended for "public benefit entities", which include housing associations and universities as well as charities.

- The Statement of Recommended Practice, which is currently out for consultation, will interpret the new FRS 102 for the benefit of charities.

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