Charities SORP

Application guidance for charity accounting

How the SORP is developed and its place in law


This presentation describes the process for reviewing and changing the Charities Statement of Recommended Practice (SORP) and explain the position of the Charities SORP in law and accounting standards.

The process of reviewing and changing the SORP

The Financial Reporting Council (FRC) is the prescribed body for issuing accounting standards in the UK and Republic of Ireland.  Statements of Recommended Practice (SORPs) are developed to show how these accounting standards are applied to particular specialised industries, including charities. 

The FRC has a policy for developing SORPs and each SORP must have a Statement by the FRC confirming that it does not appear to conflict with any fundamental points of principle in accounting, auditing or actuarial standards. 

Who can develop or review a SORP?

Only bodies that are recognised by the FRC as a SORP-making body can develop or review a SORP.  To keep the SORP in line with legal or FRC requirements, a SORP-making body must update relevant provisions within the SORP when changes in law or FRC standards necessitate this.

Who is the SORP-making body for Charities?

The charity regulators in the UK make up the SORP-making body:

    1. Charity Commission for Northern Ireland
    2. Charity Commission for England and Wales
    3. Office of the Scottish Charity Regulator

The Charities Regulator in the Republic of Ireland is currently an observer to the SORP-making body and can exercise an option to join as a fourth partner later.

The process for development or review of a SORP

Before developing or revising a SORP, the SORP-making body must get approval from the FRC.   The SORP must then be developed or revised in line with the current FRC accounting standard(s) and best practice. 

The SORP must be drafted by the SORP-making body or a properly constituted board or working party of the SORP-making body. 

The SORP development process must ensure effective participation by stakeholders and have sufficient technical support.  The process must include an open consultation and the SORP-making body publishes all responses received to the consultation on its website.

The importance of following the right process

A SORP-making body has to provide evidence that it has followed the correct process when developing or revising a SORP.  This is because the FRC must be satisfied that due process has been followed and that the process was designed to lead to effective participation by stakeholders. 

The FRC will only issue its required Statement on the SORP if it is satisfied that this has taken place and that the SORP does not contain any points of principle that conflict with current FRC standards and practice or undermine the FRC’s broader objectives.

Final steps prior to publication of a new SORP

  1. The FRC carries out a review of the draft SORP in accordance with its governance requirements
  2. The SORP-making body must allow sufficient time for any changes sought by the FRC to be incorporated prior to publication
  3. Following any subsequent changes to the draft SORP, the FRC must decide whether they can issue a Statement on the SORP prior to publication
  4. Once the FRC issues its Statement on the SORP, the SORP can be published

What is the place of the SORP in law and accounting standards?

Charity law

In each charity law jurisdiction, there are separate rules about the preparation of charity accounts.  At the time of preparation of this presentation, the Republic of Ireland, these requirements have not been implemented in regulations as yet.

In terms of charity law, in Scotland, Northern Ireland and England and Wales, there are legal requirements set out in the relevant act and regulations regarding the preparation of accounts.  

Company law

For any charitable company, the reporting requirements of company law must be followed.  The SORP is prepared to be consistent with company law requirements in the UK and the Republic of Ireland but charitable companies also need to ensure any particular requirements that stem from company law are met.  There is a strong presumption that charitable companies will comply with the SORP in order for their accounts to give a true and fair view as required by the applicable company law.

Accounting standards

FRS 102 is the only financial reporting standard that currently applies to the financial statements of charities.  The SORP provides guidance on how to apply this standard and also sets out the content requirements for the Trustees’ Annual Report. The SORP also requires some charity specific accounting presentations and disclosures.

There is a fundamental requirement of accounting standards and company law that financial statements must provide a ‘true and fair’ view of the financial position and financial activities of the reporting entity.  Where charity accounts are prepared in line with the SORP, this requirement will be satisfied. Charitable companies must also ensure that additional reporting requirements that exist in company law are also met to fulfil the true and fair requirement.