In previous newsletters we have disccussed the changes in financial reporting that are taking place during 2015 and 2016.
While the implications of the changed accounting requirements are not immediate, trustees have important decisions to make now to be ready to embrace the changes and minimise disruption. For charities, change derives from both the accounting standards that will underpin the preparation of charity financial statements and other broader changes stemming from the introduction of revised charity SORPs.
With effect for accounting periods beginning on or after
1 January 2015, a single standard FRS 102 replaces current UK Generally Accepted Accounting Principles (“GAAP”). Until earlier this year, it appeared that smaller entities would be able to continue with the measurement and recognition principles of existing GAAP laid down in the Financial Reporting Standard for Smaller Entities (“FRSSE 2015”). Now, the FRSSE 2015, whose recognition and measurement principles are based on existing UK GAAP and not FRS 102 will be withdrawn during 2015. Importantly, small entities do have the option of adopting the new accounting standard early. This is an important consideration given changes that also stem from the charities SORP.
To implement the new accounting regime, two new Charities SORPs have been introduced which replace the Charities SORP (2005):
- FRSSE SORP - based on the recognition and measurement principles of FRSSE (2015)
- FRS 102 SORP - based on the recognition and measurement principles in FRS 102
Both of these SORPs provide guidance for charities on how to apply the relevant standards, but also bring about further changes for charities. This includes requirements relating to the trustees’ annual report, fund accounting, the format of the statement of financial activities and additional disclosures aimed at providing a high level of accountability and transparency to stakeholders.
With these inevitable changes deriving from the application of the SORP, smaller charities electing to continue to apply the FRSSE (2015) and adopt the FRSSE SORP will encounter further change to their accounting when they are required to apply
FRS 102 from 1 January 2016.
It is therefore important to consider which accounting and SORP regime to adopt now. While it may be convenient to continue to apply the requirements of the FRSSE and adopt the FRSSE SORP for the year ending 31 December 2015, this has to be counter balanced with inevitable change to FRS 102 for 2016. It may be easier to embrace the change now. However, this will require thought and planning ahead of the year end.
For more information, please contact Ella Waddingham
, Mark Hart
or your usual Blick Rothenberg contact.