The Charities Statement of Recommended Practice (SORP) has been updated as a result of recent amendments made to FRS 102, significantly changing the way Gift Aid and several other financial factors are accounted for.
The amendments, which apply to all charities in the UK and the Republic of Ireland, are summarised below. To read the Charities SORP Update Bulletin 2 in full, please click here.
Module 3: Accounting standards, policies, concepts and principles, including the adjustment of estimates and errors
FRS 102 requires that unless an exception is permitted that comparative information must be provided for all amounts presented in the current period’s financial statements, which includes the notes.
Module 5: Recognition of income, including legacies, grants and contract income
FRS 102 requires such gift aid payments to be accounted for consistently with dividends. FRS 102 requires dividends to be recognised when the shareholder’s right to receive payment is established.
Module 10: Balance sheet
Amendment 1: Charities SORP (FRS 102) is amended to remove the undue cost or effort exemption for depreciating assets comprising of two or more major components which have substantially different useful economic lives. It was determined that this treatment was inconsistent with FRS 102. The accounting treatment for these assets in the SORP is now aligned with that in FRS 102.
Amendment 2: Charities SORP (FRS 102) is amended to introduce an accounting policy choice which allows charities that rent investment properties to other group entities to measure those investment properties either at cost (less depreciation and impairment) or at fair value. It is also amended to remove the undue cost or effort exemption for measuring the investment property component of a mixed use property at fair value, and include additional guidance on when the different components of the property should be separated.
Module 13: Events after the end of the reporting period
As an expected gift aid payment is accounted for as a distribution to owners, FRS 102 does not allow these payments to be recognised as a liability at the end of the reporting period unless a legal obligation for the subsidiary to make the payment exists at the reporting date
Module 14: Statement of cash flows
Charities SORP (FRS 102) is amended to introduce the requirement for a reconciliation of net debt to be prepared as a note to the statement of cash flows.
Module 27: Charity mergers
Charities SORP (FRS 102) is amended to include the transfer of activities to a wholly owned subsidiary undertaking as an example of a charity reconstruction that may be accounted for as a merger. The amendments to FRS 102 expanded the definition of a group reconstruction to incorporate the transfer of a business in certain circumstances. These reconstructions can be accounted for using merger accounting, provided the use of this method is not prohibited by company law or other relevant legislation.
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