Finance: Advice line - Pesh Framjee on finance and governance

Q: We are told that we will have to comply with the Statement of Recommended Practice on Accounting and Reporting by Charities. Why do we have to comply if it is only recommended practice?

A: Some believe that the Sorp is only a recommendation that can be ignored, but this is far from the case. The Sorp is enshrined in accounting standards and also in law. Financial Reporting Standards are applicable to all financial statements that are intended to give a true and fair view. FRS 18 on accounting policies explains that the relevant Sorp should be followed where one exists. In addition, the Charity Accounts and Reports Regulations state that the accounts "shall be prepared in accordance with the methods and principles set out in the Sorp".

Sorp 2005 explains: "The Sorp is compatible with the requirements of the law. The Sorp clarifies how charity accounting is affected by legal requirements, including aspects of trust law. It provides the charity sector with an interpretation of accounting standards and principles and clarifies the accounting treatment for sector-specific transactions. In so doing, applying the Sorp enables the preparers of charity accounts to meet their legal or other reporting duties for their accounts to give a true and fair view." Table 1 in Sorp 2005 provides a useful summary of the legislative framework that underpins the Sorp.

However, if you believe that following an aspect of the Sorp will prevent your accounts from giving a true and fair view, then you should depart from the Sorp. FRS 18 states: "In the event of a departure, the entity should give a brief description of how the financial statements depart from the recommended practice set out in the Sorp."

Pesh Framjee is head of the non-profit unit at Deloitte and special adviser to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to

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