There’s still time to contribute to charity consultation
The revised draft Charity Statement of Recommended Practice (SORP) 2026 is currently open for consultation until 20 June.
The SORP will apply to all UK charities preparing their financial statements on an accruals basis, coming into effect for accounting periods commencing on or after 1st of January 2026.
Initially published in March, the draft SORP introduces significant changes including new recognition criteria on accounting for income from contracts with customers, revised accounting treatment of operating leases, and enhanced disclosure requirements in trustees’ reports.
These changes may result in additional work for charities. For example, calculating the discounted value of future payments for operating leases could be complex. Charities that have income from contracts with customers will need to apply the full five step revenue recognition model to individual contracts to determine the impact of the changes.
Proposed changes to trustees’ reports will require the collection and disclosure of additional information in relation to impact reporting, while sustainability reporting will be encouraged for all charities and mandatory for those with a turnover exceeding £15 million.
The new SORP will also affect charity lenders like bankers, as charities could face an increase in liabilities on balance sheets which may impact the metrics for borrowings, lending covenants, and credit ratings.
Importantly, changes to operating lease accounting will apply in the year of implementation meaning prior year figures cannot be restated, potentially affecting the comparability of certain figures on the balance sheet. However, charities may choose to restate prior year figures for the income recognition changes if they believe it would benefit their stakeholders’ understanding of the financial statements.
While the draft SORP is currently under consultation, some proposals will not be modified. These include the changes to lease accounting and revenue recognition which align with the revised FRS102 accounting standard also coming into force on the same date as the new SORP.
Charities can however still influence several key areas of the SORP including the thresholds for the proposed three tier approach; changes to the disclosures in the trustees’ report including sustainability reporting and the additional disclosures around reserves; and changes to the requirement for a cash flow statement.
The SORP committee is particularly interested to hear from smaller charities on what would be helpful in meeting both their needs and those of their stakeholders. This includes specific input on proposals to remove the requirement to prepare a cashflow statement until turnover exceeds £15m and to provide them with the ability to prepare their Statement of Financial Activities on a natural classification basis for their income and expenditure headings.
With less than three weeks until the consultation closes, I would advise third sector organisations to submit their views on the draft accounting standards as they will soon become enshrined as the new regime for UK charities going forward.
By engaging in this process, organisations can help ensure the new SORP will be fit for purpose for charities in presenting their financial statements.
Euan Morrison is head of charities at accountants and advisors CT.
