The next edition of the Charities Statement of Recommended Practice (SORP) is expected to be implemented from 1 January 2025. Work is currently underway, and I have had the privilege of being part of this, as since March 2020, I have been on the SORP Committee which oversees the rules for how charities across the UK and Ireland report on their finances1.
As recommended in the governance review, the SORP committee isn’t just accountants in practice. Effort has been made to ensure it represents smaller charities and independent examiners, people who work within charities and both grant makers and academia.
The committee must consider ideas generated by the different groups or ‘engagement strands’ and how their needs and wants can be reconciled with the constraints of current practice and financial reporting requirements set by the Financial Reporting Council (FRC), the Companies Act, charity law and other regulators, and then advise the SORP-making body.
The six engagement strands (who meet in seven panels) – trustees; smaller charities and independent examiners; professional and technical advice; larger charities; major funders and donors; and academics and regulators2 – have been active since July 2020.
The engagement strands were a new part of the process and they have been a key part of the development process, providing feedback on all topics considered by the committee so far.
SORP committee highlights… so far!
We had our first SORP committee meeting on 12 March 2020 – the week before the country went into lockdown. Therefore, we’ve only physically met together that once – all our meetings since then have been virtual.
Our first task during the spring and summer of 2020 was to consider how the new engagement strands should work, the role of the convenors and how members of the engagement strands should be inducted to their role. We discussed what information we should share with them to inform their discussions, while also mindful that we wanted their views and ideas and didn’t want to stifle debate. We wanted blue-sky thinking, and nothing was off the table.
We also considered the timeline for the SORP development process. Since then the timetable for new FRS102 has slipped back a year, so we will have longer to draft and consult, with the new SORP now expected to take effect from 1 January 2025.
During 2020/21 the committee considered research and ideas from members, heard from the convenors of each engagement strand and debated each of the 15 topics that were highlighted during the research and exploration phase.
This enabled us to hear evidence from both the charity regulators and broader sector and allowed us to step back and consider broad questions such as:
- What do people want to know about charities, what is important information?
- How compliant are charity accounts with the existing SORP?
- What does good reporting look like?
- What would sustainability reporting look like?
The committee has sought to understand first what good looks like and what it is about the SORP as it is that doesn’t help to deliver that.
In confronting some of the issues and suggestions, we had to stop and consider what is in our gift. What are we able to change, or what is required to comply with FRS102?
As a result, we have made two submissions to the FRC of things to consider in editing FRS1023. If changes can be permitted there, we will have more leeway in drafting the SORP. So, we await changes to FRS102.
There are some challenges for the SORP committee in the next stage of the development process. Tiering will be the key. There are only 2 tiers now but if we had more, we could fine tune the requirements of different charities.
There is genuine desire to think small first. Not just about the size of the charity, but in terms of who the audience is for the SORP, such as non-accountants, voluntary trustees etc. so the language of SORP needs to be accessible.
Another challenge is how will FRS102 change and what else will need to be addressed in the intervening period e.g. executive pay came up while previous SORP was drafted.
Looking ahead, the committee will need to consider how SORP can be future proofed, for example when it comes to new rules around sustainability reporting. Also, how to incorporate digital and technology capabilities in how it’s published.
From my perspective my hopes for the next SORP include getting across the why, as well as the how and what, so a reader of the SORP understands why something is important and what it’s trying to achieve. Also, it would be useful to make the options for smaller charities such as Receipts and Payments accounts, which are outside of SORP, more prominent.
I would like to get rid of support costs – costs are costs! Or at least change the understanding of support costs from bad costs to “enablers”, plus more clarity on legacies so their recognition is more consistent and less controversial.
But watch this space! I will be providing updates as the process continues.