The next Charities SORP and FRS102 update

FRS 102 published update

On 27 March 2024 the revised FRS102 was published. The effective date for most of the amendments is for accounting periods beginning on or after 1 January 2026 (most commonly December 2026 or March 27 year ends) with early adoption permitted.

Some of the key highlights for charities include:

Leases (new section 20) and Income recognition (new section 23)

As anticipated, the distinction between operating and finance leases has been removed and all leases will need to be recognised on the balance sheet. However, there is an exemption for short-term leases and for low- value assets to remain off the balance sheet. This does mean that some operating leases may be excluded from the definition. The change is not made in FRS105 so does not apply to micro entities (this does not affect charities).

Section 23 is a new section revenue from contracts with customers. It follows a comprehensive five-step model for revenue recognition for all contracts with customers, which looks at identifying the distinct goods or services promised to the customer and the amount of consideration to which the entity will be entitled in exchange. This change is again not made in FRS105 so does not apply to micro entities which does not affect charities.

Low value, high volume donated goods

Paragraph 34.70 has clarified that there are circumstances when it may be impracticable to estimate the value of a resource. For example in the case of high volume, low value second-hand goods donated for resale. In such cases, the income shall be recognised in the financial period when the resource is sold or distributed. This therefore is allowing for donated goods to be recognised when sold or distributed without the need to include them as stock at the year end. This is a welcome addition and clarification to the wording to confirm that this option is available. There are also additional requirements to indicate in your disclosure where the charity benefits from such transactions which it only recognises when distributed or sold.


The new paragraph has been inserted in respect of legacy income recognition as follows:

‘PB34.70A Donations in the form of legacies are recognised when it is probable that the legacy will be received and its value can be measured reliably. Whether receipt of a legacy is probable and whether its value can be measured reliably may be affected by events such as valuations and disputes. An entity shall apply Section 32 Events after the End of the Reporting Period to determine whether the receipt of evidence about a legacy after the reporting date is an adjusting event after the end of the reporting period. When a legacy meets the definition of a contingent asset, the entity shall not recognise it but shall provide the disclosures required by paragraph 21.16. Similarly, when a legacy meets the definition of an asset but the recognition criteria are not met, the entity is encouraged to consider disclosing information relevant to users’ understanding of the entity’s financial position. In determining the probability of receipt and reliability of measurement, and in measuring the expected inflow, an entity may apply estimates and assumptions to a portfolio of legacies if the entity reasonably expects that the result of doing so would not differ materially from the result of applying this paragraph to each individual legacy.’

It comes in part from the previous Appendix to section 34 which was an integral part of section 34. However there have been changes made to the above paragraph and most significantly the following clarification wording on when a legacy receipt is probable has been removed:

‘These criteria will normally be met following probate once the executor(s) of the estate has established that there are sufficient assets in the estate, after settling liabilities, to pay the legacy…. Evidence that the executor(s) has determined that a payment can be made, may arise on the agreement of the estate’s accounts or notification that payment will be made. Where notification is received after the year-end but it is clear that the executor(s) has agreed prior to the year-end that the legacy can be paid, the legacy is accrued in the financial statements. The certainty and measurability of the receipt may be affected by subsequent events such as valuations and disputes.’

The removal of these explanation paragraphs from the new FRS102 indicates that the Charities SORP will be the guide used to interpret and provide further guidance on legacy income recognition.

What next…

There are other changes to heritage assets and the need to disclose unrecognised volunteer services for instance.  Now that FRS 102 has been finalised, the next stage is for the new Charities SORP to be issued for consultation. The new Charities SORP will also be subject to a 3-month consultation period – a very short window to provide feedback.

*[Article last reviewed and up to date as of 29 April 2024.]

Earlier Discussion

Next Charities SORP and FRS102

The Financial Reporting Council has produced a project update on the next FRS102. The timeline for its application has moved from the accounting period beginning on, or after, 1 January 2025 to 1 January 2026 at the earliest; this being a year later than FRED 82 originally proposed.

Charities SORP

The delay on the FRS102 comes as welcome news as the Charities SORP has not yet been issued for consultation; this we are expecting in 2024 with a short 12-week consultation period and plans to have a final version issued by the Autumn/Winter 2024. This means, however, that there will be little time for the charity sector to consider and debate the next SORP if only a 12-week consultation period takes place.

We ask all charities to be prepared for the SORP review in 2024 so that you can review the commentaries that will be produced on the changes planned. This includes our own commentary and events, to please issue feedback to the SORP making body. It is evident from the FRS102 process that the final version will be updated by the FRC with the comments they have received.

The FRC response to FRED 82 says “We are preparing final amendments for issue, taking into account the responses received. The final amendments are likely to differ in a number of respects from the FRED 82 proposals; the basis for conclusions will explain our key judgements and decisions.”

By providing feedback on the proposed changes by the Charities SORP, we can ensure the changes remain relevant and effective.

Next FRS102

From the project update from the FRC on the next version of FRS102, it is clear that the proposed alignment with international standards on the five-step model for contract income recognition and for all leases, including operating leases being recognised on the balance sheet remains.

However, there are indications that the FRC are considering exemptions on the size criteria to which the requirements will apply; instead making the requirements more proportional, as well as looking to clarify recognition exemptions on low value leases.

The final version is due to be issued in the first half of 2024.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

If you would like to discuss the potential impact of these changes, please contact one of our specialist team.


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