Adrienne Airlie, senior partner of Martin Aitken & Co, discusses why charity finance managers need to turn their attention to the Sorp.
For all those involved in charity finance you will no doubt have heard that the Sorp committee has issued the exposure draft on the new Statement of Recommended Practice (Sorp) for charities. The exposure draft is currently out for consultation and responses are due in by 4 November 2013.
The Sorp applies to periods which begin on or after 1 January 2015. There is no early adoption allowable for the charity Sorp unlike FRS102, the new accounting framework legislation, which was the catalyst for introducing the new Sorp.
I would imagine that many of you are thinking “Not another rule change, giving me more hassle in an already over-complicated work life!”
For many, the solution is “let the accountants and other technical gurus read it through and resolve the issues and I’ll look at it when I have to.” This is a very understandable approach and one that we have all used with various technical developments in the past – but I urge you not to dismiss these changes totally.
Sorp needs some thought and here’s why. Myself, and members of my charity team, have attended some external seminars about this issue and as a group, we will review the consultation questions and will draft a response.
However the best discussions by far have been with clients or other charity finance staff who have already looked at the exposure draft. They have taken their problem area (and let’s be honest every charity has one at least!) and compared the current Sorp with the exposure draft. The issues and comments arising have been enlightening.
As charity advisers we try our best to review new technical documents from our clients’ perspective but there is no substitute for those first hand opinions.
So let me share some of the thoughts, comments and questions that I’ve been privy to so far as a way to whet your appetite to delve into the Sorp and contribute yourself.
The Sorp is set up in a format of 29 modules so that you can select the areas appropriate to you. Does this make it more user friendly for you?
Alongside FRS102, small charities will still be able to continue to follow the FRSSE. Does the new Sorp signpost the less onerous FRSSE options effectively? Will trustees be able to know the difference? Is there any real value with the FRSSE concessions?
The Sorp has been re-worked to ensure that there is clearer guidance on what is a compulsory requirement to comply within the Sorp versus what is good practice and recommended guidance rather than legislation. Do you think the style used is clear enough?
The basic structure of the Statement of Financial Activities (SOFA) and some terms has been simplified to reduce the detail presented on the face of the SOFA. For example voluntary income is renamed ‘income from donations’ and resources expended is renamed ‘expenditure’. Are these worthwhile changes? Do they add any value or detract from the current format?
5. Income recognition
A charity will now need to recognise income when its receipt is probable. This may have the potential of accounting for income earlier than under the old Sorp. Recognising income is a recurring issue with charities so for this area alone it’s worthwhile reviewing that module.
These are just a small sample of some of the queries that I’ve heard so far. There are many questions, but remember, you may only get the answer that suits you by shaping the discussions. So get cracking, and respond to at least some of the consultation questions before 4 November.