Accounting by charities: FRS102 Periodic Review

Charities applying the SORP

The Charities (Amendment) Act 2024 was enacted on 10 July 2024 but is not yet operational as it requires formal commencement through ministerial order. When the Act becomes effective, the minister will have the ability to set thresholds for the preparation of accruals accounts or receipts & payments accounts by charities. It is expected that accruals accounts will be required for all charities with income or expenditure over €250,000. Charitable companies of any size are currently required to prepare accruals accounts under the Companies Act 2014, and there will be no change to this. 

It is anticipated that charities applying accruals accounting, including charitable companies, will be required to apply the SORP, once the Act is operational.

The SORP is currently not mandatory for any charities whether under charity or company law in Ireland; however, the SORP notes in paragraph 17 of its introduction that “In the Republic of Ireland, this SORP sets out recommended good practice”. Charities may want to consider adopting the SORP in advance of any mandated application, which is anticipated within the next few years.

Tiered reporting

One of the fundamental changes to the SORP is the introduction of tiered reporting. The three new tiers are designed to reflect the broad range of charities in the sector, and to ensure the reporting requirements on charities are proportionate to their size and complexity. Tier 1 charities are all those with gross income of less than €500k, Tier 2 charities are those with gross income of more than €500k but less than €15m, and Tier 3 charities are those with gross income of more than €15m. 

Charities within Tier 1 will have access to all SORP-related concessions and exemptions. Charities within Tier 2 will have access to some SORP-related exemptions whilst those within Tier 3 will be required to comply with all requirements and disclosures. Each module in the SORP clearly indicates to which Tier(s) the provisions and any exemptions apply. Trustees’ 

Annual report (TAR)

One of the new terminologies introduced into the SORP is impact reporting, being “to describe the difference a charity’s work has made to the circumstances of its beneficiaries and, if practicable, any wider benefits to society as a whole” (SORP Glossary). Charities could meet this requirement using infographics, case studies, statistics or testimonials, as well as narrative from the Trustees around their actions, achievements and plans for the future.

Sustainability reporting is now part of the TAR and is mandatory for all Tier 3 charities whilst optional for charities in Tiers 1 and 2. Tier 3 charities must provide a summary of how it is responding to and managing environmental, social and governance (ESG) issues. Matters discussed could include how the charity manages client-related risks and opportunities, details of employee wellbeing and inclusion programmes and business ethics and cyber security policies. 

FRS 102 periodic review

The accounting requirements in respect of revenues (known as “income” in the SORP) and leases changed substantially under the Periodic Review of the main FRS102 standard and these have been reflected in the revised SORP. 

Income transactions have now been split into two categories. Exchange transactions are those where the charity provides goods or services under contracts with third parties and such transactions are accounted for using the new five-step model introduced in FRS102. An example would be the provision of educational services in exchange for course fees. Non-exchange transactions are those where the charity receives income without providing goods or services of equal value in exchange, such as the receipt of a donation or legacy. 

An additional module has been added to the SORP to reflect the new on-balance sheet leasing model for lessees, which, alongside standard lease agreements, also deals with social donation leases and leases with peppercorn rent. In social donation leases, the rent charged is lower than market rates, and a charity may be either the lessee or the lessor. In such circumstances, there will be a non-exchange component, accounted for either as an increase in the right-of-use asset (where the lessee is the charity) or a concessionary loan (where the lessor is the charity). Peppercorn arrangements are those where the rent charge is either nil or a very nominal amount. In such circumstances, although there may be a formal rental agreement, it is unlikely that the arrangement will have economic substance and therefore forms a non-exchange transaction and is outside the scope of the leasing standard.

Preparing for the new requirements

You can find out more about the changes in FRS102 to revenue accounting* and lessee accounting** on our website. 

The accounting and reporting requirements of the new SORP will have a significant impact on some charities, particularly in the areas of leases, exchange transactions and sustainability and impact reporting. Trustees should ensure they have dedicated sufficient time and resources to understanding the implications of the new requirements.