The Sorp committee will launch a consultation on a new charities Statement of Recommended Practice later this year. This will be the fifth incarnation of the Sorp since the Accounting Standards Committee issued the first edition in 1988. Since then, the Sorp has faced repeated criticism from some quarters. Some have considered it a straitjacket that prevents charities from telling their stories effectively. Others have criticised its increasing complexity. So it is probably worth looking back to the origins of the Sorp to remind ourselves of what prompted its development in the first place.
The place to begin is 1981. This is when Professor Peter Bird and Peter Morgan-Jones published their seminal report Financial Reporting by Charities. It cast light on the sorry state of financial reporting by leading charities at the time, exposing a lack of consistency and criticising practices that would now be considered at best unusual and, at worst, deliberately misleading.
Grants and legacies were released to income over several years to 'equalise' their impact on financial results; restricted funds were excluded from the income and expenditure account; investments were included at their cost value, regardless of increases in market value since their purchase; and restricted income was deferred until it was spent.
The authors also showed how difficult it was for the public to get hold of a charity's accounts and highlighted the frequent delays in their preparation. The report created huge momentum for change.
Some argued that detailed charity accounting legislation, along the lines of the Companies Act, was needed to provide consistency and restore public trust, while others favoured the development of an accounting standard for the sector.
Then, in 1987 and 1988, three reports highlighted charity accounts as a key area of weakness. One came from the National Audit Office, another from the Public Accounts Committee and a third, carried out by a group led by Sir Philip Woodfield, endorsed plans for the development of a Sorp. Within a year, the first charities Sorp was issued.
In terms of affecting the quality of financial reporting, the Sorp has served the sector extremely well. It has provided a consistent framework for charity reporting; it deals with charity-specific transactions and helps charities apply accounting standards.
It has promoted developments in narrative reporting and brought to the fore issues such as the need for reserves and an awareness of risk management. Indeed, appreciation of the Sorp has grown. Nearly all the responses to the Accounting Standards Board's consultation in 2009 on the future of UK Generally Accepted Accounting Practice argued that the Sorp should be retained.
For those tempted to ask "what has the Sorp ever done for us?", I would recommend a glance back to the problems identified by Professor Bird as the best evidence of its value, illustrating the sea change in the quality of financial reporting we have seen during the Sorp's first 25 years.
Ray Jones, policy accountant at the Charity Commission