New Sorp for smaller charities might be in place for only a year

The Financial Reporting Council consults on proposals to change FRS 102 to make allowances for smaller entities, thereby rendering the FRSSE obsolete

Statements of Recommended Practice
Statements of Recommended Practice

The new Sorp accountancy standard for smaller charities, which is launched for the first time for financial years beginning in 2015, could be in place for only one year, under a proposal from the Financial Reporting Council.

In July, the Charity Commission and the Office of the Scottish Charity Regulator published the two new Statements of Recommended Practice for charities, applying to financial years beginning on or after 1 January 2015.

In addition to the Sorp for charities using the FRC’s FRS 102 standard, there is a new Sorp for smaller charities that work under the Financial Reporting Standard for Smaller Entities. The FRSSE is for charities that meet two of three criteria: an annual income of less than £6.5m, total assets of less than £3.26m and fewer than 50 employees.

But a consultation that was launched earlier this week by the FRC, the accounting and auditing regulator, proposes that FRSSE be withdrawn – thereby rendering the FRSSE Sorp obsolete. In this case, FRS 102 would be changed to make allowances for smaller entities.

The fourth question of seven asked by the consultation is: "Do you agree that the FRSSE should be withdrawn and small entities should be brought within the scope of FRS 102, so that they apply recognition and measurement requirements that are consistent with larger entities, but with fewer mandatory disclosures?" This might happen for accounting years beginning in 2016.

The consultation also looks at options for the Financial Reporting Standard for Micro-entities, but these will not be available to charities or other public benefit entities, according to Sudhir Singh, a partner at the accountancy firm MHA MacIntyre Hudson.

Singh told Third Sector that charities with the FRSSE Sorp option faced the tough decision of whether to use FRSSE for a short period of time or to move straight to FRS 102.

"Although the provisions likely to be added to FRS 102 for smaller entities might mean some reduced disclosure requirements, accounting measurement matters in FRS 102 such as fair value or discounting will in future apply to all," he said. "If this is what made the FRSSE approach attractive, then the benefits will be short-lived."

The FRC could renege on its plans in light of the consultation, but Singh said this was unlikely. "It would seem that the withdrawal of the FRSSE is a done deal," he said.

Responses to the consultation are invited by the end of November, after which the FRC will publish its final decision on the fate of the FRSSE.

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