The four-month consultation period for the exposure draft of the Statement of Recommended Practice came to an end in November.
The consultation attracted 179 responses and, thanks to the help of accountancy firms and sector and accountancy bodies, we were able to present the key proposals at 26 events that were attended by more than 1,600 people.
In the past few months, the Sorp committee has met several times to consider feedback to the consultation and iron out any changes before the Sorp goes back to the Financial Reporting Council for its sign-off review.
Perhaps the most dramatic change is that there are now likely to be two Sorps, not one. To understand why, you need to know how the Sorp links with UK accounting standards and how a new EU Accounting Directive affects the UK's accounting framework and, therefore, the Sorp.
Sorps are based on accounting standards issued by the Financial Reporting Council. The new Financial Reporting Standard, FRS 102, is more closely aligned with international standards, and was the catalyst for the development of a new Sorp.
But there was also an existing standard, the Financial Reporting Standard for Smaller Entities, which small organisations, including charities, could choose to apply. The FRSSE offered a 'no-change' option for smaller charities that did not want to move to the new and more internationally based framework offered by the Financial Reporting Standard.
Rather than have two Sorps, the exposure draft identified which aspects applied to smaller charities choosing to use the FRSSE and which applied to those charities using the new Financial Reporting Standard. Although 76 per cent of respondents said they felt that this combined approach worked, events since the launch of the consultation have meant that there is now a strong case for two Sorps, with charities choosing one or the other, in line with the accounting standard they use.
So what has brought about this change in approach? First, the Sorp committee received vehement feedback from a number of respondents, most prominently the Institute of Chartered Accountants in Scotland, which said the Sorp was too focused on applying the new Financial Reporting Standard and neglecting the FRSSE option.
Second, just as the FRC finalised its new Financial Reporting Standard last year, the EU was finalising a new accounting directive that will affect the disclosures required by small companies and so necessitate a further change to the FRSSE. This, in turn, will mean some changes to the Sorp, as it applies to small charities, in the not too distant future. These changes are unlikely to affect significantly how accounts are prepared, but will almost certainly reduce the number of notes that must be provided by small charities in their accounts.
Having two Sorps - one based on the new Financial Reporting Standard and the other on the FRSSE - will remove the criticism that there was too much focus on the new Financial Reporting Standard. It will also mean that future changes to the FRSSE can be handled more easily and will also allow charities to focus more clearly on requirements that apply specifically to them.
We now await any issues that might arise from the FRC's review of the Sorps that will take place over the next couple of months.
Ray Jones is policy accountant at the Charity Commission