OSCR, in conjunction with the Charities Commission in England and Wales, have recently updated the Standards of Recommended Practice (“SORP”) for charity accounts preparation. What is important to remember about the new recommended practice is the extent to which it impacts the narrative of a charity’s annual report. There is now an even greater encouragement, and in some cases need, to articulate a charity’s legal structure and governance. As the title suggests we are particularly interested in certain “non-numbers” aspects of the SORPs.


The “2005 SORP” required updating to bring it in line with International Financial Reporting Standards. As a result, from 1 January 2015, the two SORPs replaced the 2005 SORP, although neither benefits from a similarly catchy name:

  1. “FRSSE SORP” shadows the rules found in Financial Reporting Standard for Smaller Entities. These rules will apply to charities that meet the size criteria of a “small company” as defined in the Companies Act 2006, namely one that meets two of the following conditions: (1) a turnover of not more than £6.5 million; (2) a balance sheet total of not more than £3.26 million; or (3) 50 employees or less.
  2. “FRS 102 SORP” shadows the rules found in Financial Reporting Standard 102, and will cover all other charities which prepare accounts.

Helpfully, OSCR and the Charities Commission have created a microsite,, to provide trustees and their advisers with further information on the changes. The website is surprisingly user-friendly and provides useful help-sheets. In addition, trustees and their advisers will be able to tailor the SORPs on the microsite to reflect their specific charity’s structure by answering a series of simple questions at the beginning.

Both SORPs operate on a “must”, “should” and “may” basis. Where either SORP states that something “must” be done, it is compulsory for the trustees to adhere to this. “Should” indicates recommendations that are considered best practice and the guidance provided by OSCR and the Charities Commission strongly recommends that a preparer of accounts adheres to these rules. “May” indicates optional rules or recommendations that might be contemplated when preparing accounts for charities. For the purposes of this blog, we will focus on FRS 102 SORP and the narrative aspects (after, we are focussing on “not the numbers”!).

Annual Reports

Part 1 of the FRS 102 SORP focuses on the trustees’ annual report (“the Report”). The Report, in simple terms, provides people with an explanation and articulation of what the charity actually does, linking its activities to its purposes and, ultimately, the public benefit provided. The document is a vital tool for donors, funders, stakeholders and, of course, the wider general public, enabling them to see how funds are managed and invested within a charity. In more recent times, there has been a move towards the Report providing a greater depth of information and trustees are expected now to provide (greater) comment on areas not typically associated with the “numbers” parts of accounts, i.e. structure, governance and management; administrative details; and objectives and activities.

The FRS 102 SORP continues this theme. It introduces new measures designed to increase this information obligation placed on charities. Here are some of the most significant changes to “non-numbers” related issues. Changes affecting all charities Under the new rules, all charities must now explain their policy for holding reserves. They must disclose any amounts held in reserve and the reason for this. Conversely, where the trustees have decided that no reserves should be held, the Report must explain why the trustees have taken this decision.

In addition, all trustees must now be disclosed on the Report if they served as a trustee during the reporting period or if they are a trustee at the time that the Report was approved. The 2005 SORP had previously limited the number of trustees requiring naming to 50. This change fits with the general move towards the further accountability of charities and their trustees.

Larger charities

The information burden is, understandably, greater on larger charities. A “larger charity” is one which requires to be audited under charity law. While larger charities must follow the same structure when preparing the trustees’ annual report, they will be required to go into greater detail in each part.

Under FRS102 SORP, larger charities will be required to explain their social investment policies and clarify how any programme related investments contributed to the achievement of their aims and objectives.

FRS 102 SORP also places a greater burden on larger charities in relation to risk management. More specifically, they must detail the main risks challenging the charity and then summarise the charity’s plans and strategies required to manage that risk.

Charities will also be required to reflect certain third party relationships and transactions.

Larger charities must also detail their measures in place for determining how their key management personnel are paid and remunerated, and any criteria used when setting this pay.

Final thoughts

The requirements of the new SORPs ask trustees to “account” for much more than simply how the money has been spent in “pure” financial terms- it’s not all about the numbers. That can have positives as it provides charities with a formal place in which to articulate their purposes, achievements and governance. The requirement in the context of SORP to articulate a charity’s purposes, achievements and governance also ties in with the future of OSCR regulation, on which we will report on shortly.

For more on this contact a member of our charities and third sector team or Alan Eccles – or 0141 245 6255 and follow at @BCharitable

Alan Eccles

Partner at Brodies LLP
Alan is a Partner specialising in private client (succession, incapacity and asset protection) matters as well as the charities, third and impact sectors.
Alan Eccles