CHARITIES SORP (FRS 102) - GOV.UK

1 Accounting and Reporting by CHARITIES : Statement of Recommended Practice applicable to CHARITIES preparing their accounts in accordance with the FinancialReporting Standard applicable in the UK and Republic of Ireland( frs 102 )(effective 1 January 2019)Secretariat to the CHARITIES SORPCHARITIES SORP ( frs 102 )(second edition - October 2019) Crown copyright 2019 first edition published 2014. ISBN 978 1 84508 528 5 Published by CIPFA on behalf of the Joint SORP-Making Body: the Charity Commission for England and Wales, the Charity Commission for Northern Ireland and the Office of the Scottish Charity may re-use this information (excluding logos and images) free of charge in any format or medium, under the terms of the Open Government Licence. You must re-use it accurately and not in a misleading context. The material must be acknowledged as Crown copyright and you must give the title of the source document/publication.

2 Where we have identified any third party copyright material you will need to obtain permission from the copyright holders document/publication can also be viewed at enquiries regarding this document/publication should be sent to: CIPFA \ The Chartered Institute of Public Finance and Accountancy 77 Mansell Street, London, E1 8AN 020 7543 5600 \ \ by The Complete Product Company, MalmesburyCHARITIES SORP ( frs 102 )Page iiiContentsACCOUNTING AND REPORTING BY CHARITIES : THE STATEMENT OF RECOMMENDED PRACTICE (SORP) SCOPE AND APPLICATION ..1 INTRODUCTION ..1 THE INTENDED USER OF THE SORP ..2 OBJECTIVES OF THE SORP ..2 THE INTENDED USER OF THE TRUSTEES ANNUAL REPORT AND ACCOUNTS ..3 SCOPE OF THE SORP ..3 THE EFFECTIVE DATE OF COMMENCEMENT ..4 TRANSITIONAL ARRANGEMENTS FOR CHARITIES REPORTING UNDER frs 102 FOR THE FIRST TIME.

3 6 CHOICE OF ACCOUNTS PREPARATION METHODS ..6 HOW TO USE THE MODULAR SORP ..6 USE OF THE TERMS MUST , SHOULD AND MAY ..7 INDEX OF SORP MODULES ..9 STATEMENT BY THE FINANCIAL REPORTING COUNCIL ON THE CHARITIES SORP ( frs 102 ) (SECOND EDITION OCTOBER 2019) ..111. TRUSTEES ANNUAL REPORT ..12 OVERVIEW AND THE PURPOSE OF THE TRUSTEES ANNUAL REPORT ..12 WHO IS RESPONSIBLE FOR PREPARING THE TRUSTEES ANNUAL REPORT? ..13 REPORTING BY SMALLER CHARITIES ..13 THE CONTEXT FOR REPORTING ..13 THE CONTENT OF THE TRUSTEES ANNUAL REPORT REQUIRED OF ALL CHARITIES ..14 THE PROVISION OF OTHER INFORMATION ..16 THE ADDITIONAL CONTENT REQUIRED OF LARGER CHARITIES ..172. FUND ACCOUNTING ..22 INTRODUCTION ..22 GENERAL PRINCIPLES OF FUND ACCOUNTING ..23 TRANSFERS BETWEEN FUNDS ..26 FUND DISCLOSURES IN THE NOTES TO THE ACCOUNTS ..273. ACCOUNTING STANDARDS, POLICIES, CONCEPTS AND PRINCIPLES, INCLUDING THE ADJUSTMENT OF ESTIMATES AND ERRORS.

4 29 INTRODUCTION ..29 WHAT ARE ACCOUNTING STANDARDS, POLICIES, CONCEPTS AND PRINCIPLES?..29 LENGTH OF THE REPORTING PERIOD ..30 PRESENTATION CURRENCY ..31 GOING CONCERN ..31 MATERIALITY ..31 OFFSETTING ..32 SOURCE OF REPORTING AND ACCOUNTING DISCLOSURE REQUIREMENTS ..32 ALTERNATIVE MEASUREMENTS TO FAIR VALUE ..32 SELECTION OF ACCOUNTING POLICIES ..32 COMPLIANCE WITH THE SORP ..33 CHANGES IN ACCOUNTING POLICIES ..33 CHANGES IN ACCOUNTING ESTIMATES ..34 Accounting and Reporting by CharitiesPage ivCORRECTION OF A PRIOR PERIOD ERROR ..34 DISCLOSURE OF ACCOUNTING POLICIES, CHANGES IN ESTIMATION TECHNIQUES AND PRIOR PERIOD ERRORS ..34 COMPARATIVE INFORMATION ..364. STATEMENT OF FINANCIAL ACTIVITIES ..37 INTRODUCTION ..37 PRESENTATION OF INFORMATION ..39 LINE HEADINGS USED IN THE STATEMENT OF FINANCIAL ACTIVITIES ..435. RECOGNITION OF INCOME, INCLUDING LEGACIES, GRANTS AND CONTRACT.

5 50 UNDERSTANDING THE NATURE OF INCOME ..50 GENERAL RULES FOR INCOME RECOGNITION ..52 GENERAL PRINCIPLES FOR RECOGNISING INCOME FROM DONATIONS AND GRANTS ..52 IDENTIFICATION OF TERMS AND CONDITIONS ..53 OTHER TERMS AND CONDITIONS THAT LIMIT THE RECOGNITION OF INCOME ..53 DEFERRING INCOME WHERE CONDITIONS THAT LIMIT RECOGNITION ARE NOT MET ..54 TERMS AND CONDITIONS THAT DO NOT PREVENT RECOGNITION ..54 RECOGNISING INCOME FROM LEGACIES ..55 INCOME FROM DONATED GOODS, FACILITIES AND SERVICES ..56 INCOME FROM CONTRACTS FOR THE SUPPLY OF GOODS AND SERVICES ..56 INCOME FROM MEMBERSHIP SUBSCRIPTIONS ..58 INCOME FROM INTEREST, ROYALTIES AND DIVIDENDS ..58 SETTLEMENT OF INSURANCE CLAIMS ..58 DISCLOSURES AND NOTES TO THE ACCOUNTS ..586. DONATED GOODS, FACILITIES AND SERVICES, INCLUDING VOLUNTEERS ..60 INTRODUCTION ..60 INCOME RECOGNITION CRITERIA.

6 60 MEASUREMENT BASES ..61 ACCOUNTING FOR DONATED FACILITIES AND SERVICES, INCLUDING VOLUNTEERS ..61 ACCOUNTING FOR DONATED GOODS AND SERVICES CAPITALISED AS TANGIBLE FIXED ASSETS ..62 ACCOUNTING FOR DONATED GOODS FOR DISTRIBUTION TO BENEFICIARIES ..62 ACCOUNTING FOR DONATED GOODS FOR RESALE ..63 DISCLOSURES IN THE NOTES TO THE ACCOUNTS ..647. RECOGNITION OF EXPENDITURE ..65 INTRODUCTION ..65 GENERAL RULES FOR THE RECOGNITION OF LIABILITIES AND EXPENDITURE ..65 RULES ON MEASUREMENT OF LIABILITIES ..66 PRINCIPLES FOR RECOGNISING LIABILITIES FROM CONSTRUCTIVE OBLIGATIONS ..66 CONDITIONS THAT LIMIT THE RECOGNITION OF A FUNDING COMMITMENT ..67 ACCOUNTING FOR LIABILITIES ARISING FROM PERFORMANCE-RELATED GRANTS ..68 PROVISIONS FOR LIABILITIES ..68 TREATMENT OF COMMITMENTS NOT RECOGNISED AS PROVISIONS OR LIABILITIES ..69 ACCOUNTING FOR ONEROUS CONTRACTS.

7 69 TREATMENT OF EMPLOYEE BENEFITS ..70 CHARITIES SORP ( frs 102 )Page vDISCLOSURE OF PROVISIONS AND FUNDING COMMITMENTS IN THE ACCOUNTS ..718. ALLOCATING COSTS BY ACTIVITY IN THE STATEMENT OF FINANCIAL ACTIVITIES ..72 INTRODUCTION ..72 GENERAL PRINCIPLES FOR REPORTING ACTIVITIES ..72 IDENTIFICATION OF SUPPORT COSTS ..73 METHODS OF ALLOCATING COSTS TO FOR COSTS SHARED BETWEEN FUNDRAISING AND CHARITABLE ACTIVITIES ..74 DISCLOSURES REQUIRED IN THE NOTES TO THE ACCOUNTS ..749. DISCLOSURE OF TRUSTEE AND STAFF REMUNERATION, RELATED PARTY AND OTHER TRANSACTIONS ..76 INTRODUCTION ..76 DISCLOSURE OF TRUSTEES REMUNERATION AND BENEFITS ..76 DISCLOSURE OF TRUSTEES EXPENSES ..77 TRANSACTIONS WITH RELATED PARTIES THAT REQUIRE DISCLOSURE ..78 TRANSACTIONS WITH RELATED PARTIES THAT DO NOT REQUIRE DISCLOSURE ..78 DISCLOSURE OF RELATED PARTY TRANSACTIONS.

8 79 DISCLOSURE OF AUDIT, INDEPENDENT EXAMINATION AND OTHER FINANCIAL SERVICE FEES ..80 DISCLOSURE OF EX-GRATIA PAYMENTS ..80 DISCLOSURE OF STAFF COSTS AND EMPLOYEE BENEFITS ..80 REMUNERATION AND BENEFITS RECEIVED BY KEY MANAGEMENT PERSONNEL ..8110. BALANCE SHEET ..82 INTRODUCTION ..82 STRUCTURE OF THE BALANCE SHEET ..82A: FIXED ASSETS HEADINGS, CLASSIFICATION AND DISCLOSURES ..84B: CURRENT ASSETS HEADINGS, CLASSIFICATION AND DISCLOSURES ..92C: LIABILITIES (C1 TO C3) HEADINGS, CLASSIFICATION AND DISCLOSURES ..94D: FUNDS OF THE CHARITY (D1 TO D5) CLASSIFICATION AND DISCLOSURES ..9711. ACCOUNTING FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES ..98 INTRODUCTION ..98 HOW ALL CHARITIES ACCOUNT FOR BASIC FINANCIAL INSTRUMENTS ..99 THE ACCOUNTING TREATMENT FOR TRANSACTIONS INVOLVING EXTENDED CREDIT TERMS 100 HOW TO IDENTIFY A BASIC FINANCIAL INSTRUMENT UNDER frs 102 .

9 100 SUBSEQUENT MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES ..101 IMPAIRMENT OF FINANCIAL ASSETS ..101 ACCOUNTING FOR CONCESSIONARY LOANS MADE OR RECEIVED ..101 ACCOUNTING FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES WHICH DO NOT MEET THE frs 102 DEFINITION OF BASIC FINANCIAL INSTRUMENTS ..102 EXAMPLES OF OTHER FINANCIAL INSTRUMENTS ..102 DISCLOSURES TO BE MADE IN THE NOTES TO THE ACCOUNTS ..10312. IMPAIRMENT OF ASSETS ..105 INTRODUCTION ..105 WHAT TO DO IF IMPAIRMENT IS INDICATED ..105 IDENTIFICATION OF THE RECOVERABLE AMOUNT ..105 INDICATORS OF IMPAIRMENT ..107 Accounting and Reporting by CharitiesPage viACCOUNTING FOR IMPAIRMENT LOSSES AND REVERSALS ..107 DISCLOSURES TO BE MADE IN THE NOTES TO THE ACCOUNTS ..10813. EVENTS AFTER THE END OF THE REPORTING PERIOD ..109 INTRODUCTION ..109 ADJUSTING EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD.

10 109 NON-ADJUSTING EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD ..110 DISCLOSURE IN THE ACCOUNTS FOR NON-ADJUSTING EVENTS AFTER THE END OF THE REPORTING PERIOD ..11014. STATEMENT OF CASH FLOWS ..111 INTRODUCTION ..111 STRUCTURE OF THE STATEMENT OF CASH CASH FLOWS ARE INCLUDED AS OPERATING ACTIVITIES? ..112 WHAT CASH FLOWS ARE INCLUDED AS INVESTING ACTIVITIES? ..112 WHAT CASH FLOWS ARE INCLUDED AS FINANCING ACTIVITIES? ..113 THE METHODS OF COMPILING THE STATEMENT OF CASH FLOWS ..113 TEMPLATE FOR A STATEMENT OF CASH FLOWS ..114 DISCLOSURES IN THE NOTES TO THE ACCOUNTS ..11415. CHARITIES ESTABLISHED UNDER COMPANY LAW ..118 INTRODUCTION ..118 PREPARATION OF THE DIRECTORS REPORT ..118 REQUIREMENT FOR AN INCOME AND EXPENDITURE ACCOUNT ..119 PREPARATION OF A COMBINED STATEMENT OF FINANCIAL ACTIVITIES AND INCOME AND EXPENDITURE ACCOUNT.