On 30 September, the Charity Community will host a free 2-hour workshop, SORP 2026: lease accounting changes in practice, to help charities understand one of the most significant financial reporting changes introduced by the Charities SORP 2026.
This webinar will explore how revised lease accounting requirements under FRS 102 will affect charity accounts in practice, using worked examples and charity-specific case studies. To help you get to grips with the changes, we will share an Excel workbook containing the worked examples used during the webinar. This will allow you to revisit the calculations alongside the webinar recording and practise applying the requirements to your own charity’s circumstances.
What is changing?
The headline change is that most leases will now need to be recognised on the balance sheet as a right-of-use asset alongside a corresponding lease liability. Previously, many operating leases were kept off-balance sheet, with future commitments disclosed only in the notes to the accounts. Under the revised requirements, that will no longer be the case for most arrangements.
For charities with leased offices, shops, vehicles or equipment, this could result in material increases in both total assets and total liabilities. The impact will also be seen in the Statement of Financial Activities (SoFA), where lease costs will generally be replaced by a combination of depreciation and finance costs. The changes will also require additional disclosures in the notes to the accounts, meaning charities may need to collect and analyse information that they have not previously captured.
More than a technical accounting exercise
The impact of the changes extends beyond the obvious areas. Trustees should be aware that their reserves figure may be impacted, especially if there is a social donation element to the lease agreement. Increases in gross assets and liabilities could also have implications for financial thresholds used elsewhere in charity reporting and regulation. Although the charity's underlying economic position may not have changed, key figures in the accounts may look quite different from previous years.
Trustees therefore need to understand these changes now, not when the first set of accounts is presented for approval. Boards will need to be able to interpret movements in assets, liabilities, income and expenditure, explain them in their annual report, and consider if there is a wider impact for their decision-making. If significant adjustments are only identified during the year-end reporting process, this could create avoidable challenges for finance teams, auditors and trustees, and may lead to increased audit fees.
Key areas of judgement
One reason charities should start preparing early is that many of the new requirements involve judgement rather than simple calculations. Determining the lease term is often more complex than it first appears. Charities may have extension or break clauses that require management to assess whether options are reasonably certain to be exercised.
Selecting an appropriate discount rate where this is not implicit in the lease can be equally challenging. The lease liability is calculated by discounting future lease payments, but many charities will not have readily available borrowing rates. Management may therefore need to use an appropriate incremental borrowing rate or the charity’s obtainable borrowing rate. If neither can be determined, charities are required to use the rate of interest that they could obtain on deposits held with financial institutions.
Charities will also need to whether exemptions are available, and how to account for more unusual arrangements. Social donation leases and peppercorn rent arrangements are likely to require particularly careful consideration.
These are precisely the kinds of issues that auditors and independent examiners are likely to scrutinise, making clear, timely documentation particularly important.
Learning from practical examples
Because many of the implementation challenges arise in applying the rules to real-life scenarios, practical examples are often the best way to understand the impact of these changes in practice.
Our webinar on 30 September will move beyond theory to focus on practical implementation. Crowe UK's Naziar Hashemi and Mark Atkinson will work through charity-specific examples, including social donation leases, peppercorn rents, transition arrangements and key calculations. This 2-hour workshop follows on from their May 2025 webinar which outlined the FRS 102 lease accounting changes and calculations (the recording is available on our free SORP hub).
For finance professionals, advisers and trustees alike, the webinar offers an opportunity to get ahead of one of the most significant accounting changes contained within SORP 2026 and ensure their organisations are prepared well before the first year-end arrives.
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