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Preparing for the new Charity SORP: What the FRS 102 revisions mean for your accounts | |
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The UK charity sector is on the cusp of a significant shift in financial reporting. With the revised Charities Statement of Recommended Practice (SORP) still expected to be approved by the Financial Reporting Council (FRC) this month. | |
The final version is planned for publication in October, and charities must prepare for the changes that will take effect from 1 January 2026. These updates are driven by the periodic review of FRS 102, which aligns UK GAAP more closely with international standards such as IFRS 15 and IFRS 16. The implications for some charities will be substantial, particularly in two key areas of income recognition and lease accounting. There are also some sector-specific changes. | | | |
Income Recognition: A New Five-Step Model
The revised FRS 102 introduces a structured five-step model for recognising income, based on the existing international standards (IFRS 15). The prescribed steps are: - Identify the contract(s) with a customer
- Identify the performance obligations
- Determine the transaction price
- Allocate the transaction price
- Recognise revenue as obligations are satisfied
For charities, this will mean a shift in how income from service contracts, performance-based grants, and donations is recognised. Income will no longer be recorded upfront but instead spread over time as obligations are fulfilled.
Key implications - Timing matters - multi-year grants may need to be deferred
- Restricted funds and conditional donations will require more nuanced treatment
- Greater emphasis on documentation and contract analysis
- Financial reports may look different, even if the charity’s actual cash position hasn’t changed
- Trustees will need to understand the timing of income to make informed decisions about budgeting and reserves
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James Cowper Kreston is a leading firm of accountants and business advisers, with offices across the South of England. We deliver focused, innovative advice to a diverse range of businesses and individuals helping our clients to maximise their potential.
If you would like to discuss this topic further, then please contact a member of our charities team at James Cowper Kreston.
Kind regards Fiona Hawkins | Partner T: +44(0)7990 525280 E: fhawkins@jamescowper.co.uk | | | |
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