9 April 2018
The revision of FRS102 means an update bulletin will be issued rather than reissuing the SORP
By now, you’re probably aware that the “new” accounting standard, FRS102, has already been revised and will be effective for accounting periods commencing on or after 1 January 2019. There are some changes which need to be reflected in the SORP but these are factual rather than debatable so the SORP committee proposes to make the changes via an update bulletin rather than re-issuing the SORP.
The update bulletin consultation period was relatively short, reflecting the few amendments proposed, and ended on 4 April. There are four key changes and then a number of minor amendments which will affect some but not all charities. We’ve set out below the major changes and flagged the others. We will return to these throughout the course of 2018.
1. Comparatives: bad news, comparative information will be required for all amounts presented in the current period accounts, including the notes, unless the FRS specifies otherwise. The impact of this is likely to be felt most in the funds note, which must be replicated for the whole of the prior year. Bear in mind the FRS requires disclosure of material items only so now is a good time to reconsider the impact of your reporting: it may be that fewer lines will reduce the volume and increase the impact.
2. “Undue cost or effort”: The FRS has removed this concept as an acceptable excuse for non-compliance. There were five separate instances where this was used in the original FRS. Our top three are:
3. Gift aid from wholly-owned subsidiaries: the FRS has caught up with developments over the past 3 years. Gift aid to a charity is now classified as a distribution in the subsidiary, which sets aside the concept of “constructive obligation” and means it cannot be included in the liabilities at the year-end unless a legal obligation exists (for example by signing a deed of covenant). Also included in the FRS and relevant for trading subsidiaries, is guidance that the subsidiary will account for the tax it expects to pay (ie very little if it is gift aiding all its profits). If there is no deed of covenant, there will need to be a post-balance sheet communication of the gift aid amount from subsidiary to charity to create this expectation.
4. Statement of cash flows: there is a new note to add to the statement of cash flows. This is a reconciliation of net debt and it analyses the net borrowings of the charity. There are options to adapt this note for charities – we’ll go into that in more detail in a subsequent article.
There are a number of changes which affect a minority of charities depending on specific circumstances. These are highlighted below:
The final version of this update bulletin is expected to be issued in October 2018 for implementation alongside the revised FRS102.
It can be early adopted if done so in its entirety and whether individual charities decide to do so will require evaluation of the relative advantage of doing so. For many charities the reductions in disclosure will have little impact but the increase in comparative information will increase disclosure substantially.
Those that have mixed use property will need to consider whether the asset is separable as a valuation may be required, and those with property in development will need to separate major components, although the QS should be able to provide the necessary information.
The next full SORP review will be timed to co-incide with the next FRS102 update. For those that were aware of the SORP research exercise carried out in late 2016, the SORP committee has been considering the feedback on these via four separate working groups, one for each of the themes identified (smaller charities, transparency, tiered reporting and governance). The findings of each group will be discussed during the second half of 2018 and we will keep you informed as the SORP committee minutes are published.