Significant changes to the financial reporting of charities are set to take effect from 1 January 2026.
Sean Douglass, Partner at Bates Weston and with a particular specialism in charity audits, has been looking at what the changes in the Financial Reporting Standard (FRS) 102 will mean for the financial reporting of charities.
The Charities Statement of Recommended Practice (SORP) will be impacted by the revisions to FRS 102. The changes are intended to improve transparency, consistency and financial clarity. The consultation period, allowing feedback on the proposed changes to the Charities SORP closed at the end of June.
The final version is anticipated in Autumn 2025 for implementation from 1 January 2026.
The main changes expected are:
Recognition and measurement of income
Charities will need to apply a more structured approach to recognising income under a new five-step model. This may result in changes to how and when income is reported in financial statements, particularly for grants and contracts.
Enhanced disclosure requirements
Charities will be required to provide more detailed disclosures regarding their income sources, restricted funds, and the assumptions made in financial reporting.
Leases and other financial liabilities
Changes in lease accounting will require charities to recognise more lease agreements, including traditional rental agreements, on the balance sheet, which could impact financial ratios and reporting obligations.
What this means for charities
Charities will need to review their accounting systems, update internal policies, and train staff on the new requirements.
What can we do to help?
To help with the transition to the new Charities SORP, it is important that charities are aware of the changes and identify the adjustments required.
We can assist with the following:
- assess how the changes will impact your own charities operations
- provide insight on your income recognition policies
- assist in reviewing your lease portfolio
- prepare for increased disclosure requirements in your financial statements
As specialists in the Charity audit sector, if you would like to speak with us, without obligation, please do get in touch with Sean Douglass. seand@batesweston.co.uk
