The finalised version of the Charities SORP (FRS 102) Update Bulletin 1 was published on 2 February 2016 on the SORP microsite. This Bulletin updates the Charities SORP (FRS 102) as issued in July 2014, for the following three areas:
All charities preparing accruals accounts irrespective of their size will use the updated SORP (FRS 102) for reporting periods beginning on or after 1 January 2016. Early adoption of the Bulletin is permitted for reporting periods beginning on or after 1 January 2015 (except where prohibited by regulation or charity or company law). The consultation on these issues had previously stated that there would potentially be two effective dates (one for the FRS 102 amendments and the other for the definition or a 'larger charity') and thus this simplification amendment is welcomed in the finalised Bulletin.
In relation to amendments made regarding FRS 102 there has been little change from the original consultation document. As a reminder the key changes relate to:
- Module 6 Donated goods, facilities and services, including volunteers. This has amended how stock held for distribution at no or nominal consideration is measured, being the lower of cost adjusted, when applicable, for any loss of service potential and replacement cost. Replacement cost is defined as the 'economic cost incurred if the charity was to replace the service potential of the donated goods at its own expense in the most economic matter'.
- Module 10 Balance Sheet and Module 24 Accounting for Groups and the Preparation of Consolidated Accounts. In exceptional cases where the charity is unable to make a reliable estimate of the asset's useful economic life, the maximum period over which goodwill and other intangible assets may be amortised is 10 years (rather than 5 years).
- Module 12 Impairment of assets. Prohibiting the reversal of impairment losses for goodwill.
- Module 14 Statement of cash flows. Only requiring 'larger charities' to prepare a statement of cash flows.
- Module 17 Charity mergers. Prohibiting merger accounting for charities that are companies.
The clarification that the Bulletin can be early adopted will potentially advantage a number of charities. Where early adoption is used, then all amendments made by the Bulletin must be effected (i.e. you can't pick and choose).
One area to be aware of is the preparation of cash flow statements. SORP 2005 exempted 'small charities' (typically those with income below £6.5million) from preparing cash flow statements. SORP (FRSSE) continues this exemption. SORP (FRS 102) continues to exempt 'small charities' but remember that the definition of small is now different! So a charity deciding to transition from SORP 2005 straight to SORP (FRS 102) may find that it is no longer deemed 'small' and hence have to now produce a cash flow statement. Alternatively, they may choose to transition from SORP 2005 to SORP (FRSSE) and then from SORP (FRSSE) to SORP (FRS 102) and delay the need for a cash flow statement for another year (but have to endure two transitional years!) It is worth considering this option and discussing it with your clients.
Upcoming charities conference in Midlands and Scotland, covering a range of topics from OSCR Update to VAT Recovery and Direct Tax: Opportunities and Pitfalls. Find out more here: Midlands Charities; Scottish Charities