The Charities Statement of Recommended Practice (SORP) sets out the accounting framework that most UK charities must follow when preparing their annual accounts, ensuring financial statements are prepared consistently and give a true and fair view of a charity's financial position.
How the Charities SORP works
The SORP adapts UK GAAP, specifically FRS 102, to the particular reporting needs of charities. It sets rules for fund accounting, requiring charities to report restricted funds and unrestricted funds separately, along with how income such as grants and legacies should be recognised. It also requires a trustees' annual report to accompany the accounts. The SORP applies in full to charities preparing accruals accounts, generally those above a set income threshold, while smaller charities below the threshold may be able to prepare simpler receipts and payments accounts instead.
How UK charities apply the Charities SORP
- A charity's finance team prepares its annual accounts in line with the Charities SORP, ensuring restricted and unrestricted funds are reported separately as the SORP requires.
- A growing charity crosses the income threshold requiring full SORP-compliant accruals accounts, moving away from simpler receipts and payments accounts.
- An auditor reviews a charity's accounts against Charities SORP requirements as part of the annual independent examination or audit.
- A finance director configures the chart of accounts and dimensions in their finance system to align with SORP fund reporting categories, making year-end reporting more straightforward.
How Advantage supports charity finance reporting
Advantage configures Dynamics 365 Business Central for charities and not-for-profits, using dimensions and posting groups to separate restricted and unrestricted funds in line with Charities SORP reporting requirements.
Frequently Asked Questions
Which charities have to follow the Charities SORP?
Charities preparing accruals accounts, generally larger charities above a set income threshold, must follow the SORP. Smaller charities below the threshold may be able to use simpler receipts and payments accounts instead.
What does the Charities SORP require in terms of fund reporting?
It requires charities to distinguish clearly between restricted funds, which must be spent on a specific purpose, and unrestricted funds, which trustees can use for the charity's general purposes.
Is the Charities SORP the same as normal company accounting rules?
No. It adapts UK GAAP, specifically FRS 102, to reflect the particular reporting needs of charities, such as fund accounting and the trustees' annual report.
