A number of changes to the existing Charity SORP will come into effect for accounting periods beginning on or after 1st January 2019. We have summarised the main changes as follows;
1. Comparative Information
Comparative information must be provided for all amounts presented in the financial statements including the notes. In practice, this now means that the movement of funds and analysis of net assets between funds note must be provided for the current year and the comparative year in full. Although this allows more detailed comparison year on year, it will inevitably increase the length of Charity financial statements.
2. Gift Aid Payments from Charitable Trading Subsidiaries to Parent Charities
An unpaid gift aid donation to a parent Charity can only now be accrued when the subsidiary has a legal obligation to make the payment at the reporting date. It is therefore important to have a deed of covenant put in place as soon as possible to create the appropriate obligation. As before, tax relief can still be claimed regardless of the accrual, provided the donation is made within nine months of the year end.
3. Cash Flow Statement
A new note for reconciliation of net debt is required as a note to the statement of cash flows. This note should disclose how cash, overpayment/loans and finance leases have moved since the start of the year. The FRC have included an example of such a reconciliation as a guide, contained within Bulletin 2.
4. Component Accounting
Under FRS102, where a Charity owns an asset which comprises two or more major components with substantially different useful economic lives, these components must now be depreciated separately over their separate useful lives. The concession for “undue cost or effort” has now been removed.
5. Mixed Use Properties
Where a property is held partly for operational use and partly as an investment property, the two different elements should be recorded separately (i.e. as a tangible fixed asset and investment property) if they are able to be sold or leased separately. As above, the concession for “undue cost or effort” has now been removed.
6. Investment Property Let to Group Members
Where a Charity rents an investment property to a group entity you can now choose whether to account for such property at fair value or at cost less accumulated depreciation and impairment.
7. Other Changes
Other changes include rules surrounding Charity mergers, the removal of the requirement to disclose stock recognised as debt and risks arising from financial instruments.
Charities are advised to fully familiarise themselves with the changes disclosed within Bulletin 2. The changes described above will mean when preparing the accounts, Charities will now need to consult with 3 separate guides; the original SORP, update Bulletin 1 and now update Bulletin 2.
Should you have any questions with regards to the Charity SORP updates, please do not hesitate to get in touch.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.