As highlighted previously, following the 2017 triennial review of Financial Reporting Standard 102 (“FRS102”) the SORP making body decided not to issue an updated Charities SORP. Instead the December 2017 amendments to FRS 102 will be brought into charity accounting by issuing a second Update Bulletin, “Update Bulletin 2”. Subsequent to the consultation earlier this year, it was published on 5 October 2018.

What are the changes?

Update Bulletin 2 contains three separate sections outlining “Clarifying” amendments, “Significant” amendments and “Other” amendments. The changes will affect certain charities more than others, particularly if your organisation has property, or is part of a group. There is also clarity for those gift aiding profits up from a trading subsidiary. The main changes are set out below:

Comparative information – “clarifying”

Comparative information must be provided for all amounts in the financial statements, including the notes. This therefore now includes restricted fund movement notes and the note allocating assets and liabilities across different funds. Although this allows more detailed comparison year on year, it will inevitably increase the length of your statutory accounts, the net benefit of which is debatable.

Component accounting – “clarifying”

Under FRS102, where an asset comprises two or more major components with substantially different useful economic lives, each component must be depreciated separately over its useful life. This is something that the charity (and to a large extent the SME) sector has resisted to date, relying upon a concession that allowed it to be ignored if would cause “undue cost or effort”. This concession has now been removed, meaning more charities will have to consider how specific assets, like properties, should be accounted for on a component basis. Even if the overall impact on carrying values and depreciation charges is immaterial, calculations may still be required to confirm this.

Gift aid payments by charitable trading subsidiaries – “clarifying”

An unpaid Gift Aid donation to a parent charity can only now be accrued when the subsidiary has a legal obligation to make the payment at the reporting date. It is therefore important to have a deed of covenant put in place as soon as possible to create the appropriate obligation. As before, tax relief can still be claimed regardless of the accrual, provided the donation is made within nine months of the year end.

The Bulletin states that the above “clarifying amendments” are applicable to accounting periods commencing on or after 5 October 2018, although it also highlights that they reflect existing requirements of FRS102 and are therefore already applicable to charities using FRS102.

Mixed use properties – “significant amendment”

As with component accounting, an exemption from the need to separately measure the investment property component of a mixed-use property at fair value if it would cause “undue cost or effort” has been removed. Charities will therefore need to look much more closely at property let on a long term basis that is also partly used operationally. It is now defined in the Bulletin that if the portions can be let or sold separately then this is sufficient to trigger the need to account for each element individually.

Investment property let to group members – “significant amendment”

Perhaps some good news is that for charities that rent investment property to another group entity there is now a choice as to how to account for that property. Currently this must be measured at fair value which causes discrepancies in group vs individual balance sheet treatments because on a group basis you generally need to revert to cost – going forward, charities can choose to measure such property either at cost (less depreciation and impairment) or at fair value in the individual balance sheet.

Other changes include requiring charities to prepare a reconciliation of net debt as a note to the statement of cash flows, and the extension of merger accounting to transfers of activities to non-charitable wholly owned subsidiaries.

These “significant” and “other” amendments will come into force for accounting periods commencing on or after 1 January 2019. Early adoption for charities registered in England and Wales is permitted but only on an “all or nothing” basis. Early adoption is not permitted for charities registered in Scotland with OSCR, including cross-border charities.

More detailed information can be found on the SORP making body’s website at

If you have any queries on the implications of the above, please do not hesitate to contact Euan Morrison, our Head of Charities at

  • An open book lies on a reflective surface
  • Calculating financial figures

The Charity SORP (Statement of Recommended Practice) provides guidance for charities on how to apply financial reporting standards when preparing accounts. The 2005 SORP was updated in 2015 as a result of the introduction of Financial Reporting Standard 102 (”FRS102”) and now applies to all charities preparing accounts on the ‘accruals basis’ and charitable companies.

What the 2015 Charity SORP means for you

We have a range of guidance and articles to show how the SORP affects you and your charity. You can download our Comment On (pdf) which explains the SORP.

You can also see Euan Morrison, our Head of Charities, in three webinars on the 2015 charity SORP:

Further updates and guidance

  • An open book lies on a reflective surface
  • Calculating financial figures