Proposed amendments to the financial reporting regime for charities will do little to reduce the disproportionate burdens facing smaller charities, ICAEW says. 

Responding to a consultation on the Exposure Draft Charities Statement of Recommended Practice (SORP), ICAEW says more radical reform of charity financial reporting is needed, as well as a holistic approach that involves a wider range of responsible bodies including the Financial Reporting Council (FRC) and government.

ICAEW’s consultation response says that, while it appreciates that efforts have been made to simplify or clarify the requirements for smaller charities, there is a limit to what can be achieved through the SORP alone. 

One of the principal roles of the SORP is to provide charity-specific guidance on applying the accounting standards applicable in the UK and Republic of Ireland when preparing a charity’s accounts. On 27 March 2024, FRC published the periodic review of FRS 102.

Reflecting amendments to FRS 102

The Exposure Draft SORP has been updated to reflect these amendments and also try to improve the clarity and explanation the SORP offers and advance charity reporting. The new Charities SORP (FRS 102) will come into effect for financial periods starting on or after 1 January 2026. 

The SORP also provides sector-specific guidance on two key areas of change: lease accounting and revenue recognition. Although FRS 102 changes have been decided upon, the SORP-making body says feedback on how well these are explained in the SORP will be helpful to ensure charities are clear about what they need to do.

In its consultation response, ICAEW welcomes several proposed amendments to the Charities SORP where efforts have been made to simplify or clarify requirements for small charities. They include the new illustrative table for natural classification and the clear concept of tiering that acknowledges the need for a lighter touch approach for smaller charities.

Scope for more clarity

However, it also highlights several areas of the SORP that could be shortened, made clearer or simplified, or where more illustrations showing how the requirements would apply in certain circumstances would be helpful, such as in relation to conditional grants and social investments.

ICAEW suggests that examples showing how the rules would apply in practice might best be published separately from the SORP itself – perhaps as information or help sheets, so that the SORP focuses on provisions that are mandatory. 

ICAEW’s response reflects consultation with the Institute’s Charity Committee, which includes members from leading audit firms in the sector and members working in or volunteering with charities. 

Need to reflect a diverse range of charities

Daniel Chan, Partner and Charities Leader at PwC and Chair of the ICAEW Charity Committee, said: “It’s important that the ICAEW’s response to the Charities SORP consultation reflects the breadth of views from across our membership, in particular those working and volunteering with a diverse range of charities.” 

“Together, the amendments to FRS 102 and the Charities SORP 2026 represent a significant change to financial reporting for charities. Charities preparing accounts on an accruals basis will need to work out how they will be impacted and be prepared for the adoption of these new accounting standards,” Chan added. 

Watershed moment

Richard Bray, a member of the Finance Regulatory and Taxes team at Cancer Research UK, said the Charities SORP consultation could be a watershed moment for charity reporting. “The increased complexity of reporting required by FRS 102, and with more disclosures insisted on by charity regulators, new ways need to be found to ensure accounting for the charity sector is proportionate.  

“This is particularly the case for the many small charities that will inevitably struggle to cope. I get the impression that many are making this clear in their responses to the consultation. We can only hope that the SORP-making body will listen,” Bray added.  

Fiona Condron, National Head of Charities at BDO LLP and Vice-Chair of the Institute’s Charity Committee, said: “It is evident that there is still more to be done to support the very smallest charities to understand a complex range of technical updates and further practical examples will be required.”

Reducing ambiguous language and inconsistencies

Condron said that further careful editing in the final stages will also be needed to reduce ambiguous language and inconsistencies. “Some of the proposed enhancements to legacy disclosures, reserves reporting and social investments are welcome, but the ICAEW response highlights where more consideration is needed to ensure that the new SORP fully delivers on areas where inconsistent treatments have historically been applied.” 

Kristina Kopic, Head of Charity and Voluntary Sector at ICAEW says: “I am grateful to all the Charity Community members who have shared their perspective on this consultation. Many expressed significant concerns that small charities will find it difficult to implement the new requirements without the help of advisers.

“When the cost of compliance rises, the money available for the charity’s cause unfortunately takes a hit. We hear time and again from our members that more radical reform is needed to make accounting requirements proportionate for small charities. While we understand that this goes beyond the remit of the SORP-making body and this consultation, I hope that the response from the sector will kickstart change.” 

ICAEW’s Charities SORP hub includes a range of relevant articles and on demand webinar recordings to help charities and their advisers prepare for the transition to the new SORP.

• Read ICAEW's response in full