introduction-to-charity-reporting-using-the-sorp - SORP - CCEW (2023)

Introduction to charity reporting using the SORP

The Charities SORP

An explanation of the SORP requiremenst for the trustees’ annual report and accounts.


This presentation explains what the SORP is there to do regarding both narrative reporting (words) and the financial statements (numbers).

Objectives of the SORP

This is as stated at paragraph 10 in the Introduction to the Charities SORP

The report and accounts should not be viewed simply as a statutory requirement or a technical exercise. The report and accounts, when read together, should help users of the information to understand what the charity is set up to do, the resources available to it, how these resources have been used and what has been achieved as a result of its activities.

How the SORP does this

The SORP provides guidance for charities on how to apply the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and also provides recommendations on accounting and reporting of charity-specific transactions that are not addressed within FRS 102. In particular requirements relating to the trustees’ annual report, fund accounting and the format of the statement of financial activities and additional disclosure aimed at providing a high level of accountability and transparency to donors, funders financial supporter and other stakeholders interested in a charity’s work.

Where FRS 102 allows an accounting policy choice, the SORP will identify whether a particular treatment is required or whether charities can exercise choice.

The SORP also offers advice on how a charity may disclose particular issues, or provides examples or suggested layouts of particular notes which a charity may choose to follow.

Must, should and may

‘Must’ indicates those elements that are important to the reader of the trustees’ annual report that must be included within the report or to identify particular accounting treatments, disclosures or presentational requirements that are likely to affect the ability of the accounts to give a true and fair view if not applied to material transactions or items. Where this SORP states that a recommendation is one which must be followed, non-adherence to that recommendation is a departure from this SORP.

(Video) Charities | Charity Accounts and Reporting Requirements | Bishop Fleming

‘Should’ is used for an item in the trustees’ annual report or the accounts for those recommendations aimed at advancing standards of financial reporting as a matter of good practice. While charities are encouraged to follow all the SORP’s recommendations, a failure to follow a ‘should’ recommendation with respect to the report or the accounts is not regarded as a departure from this SORP.

‘May’ is used for an item in the trustees’ annual report or an approach to a particular disclosure that a charity may choose to adopt or identifies that an alternative accounting treatment or disclosure of a transaction or event is allowed by the SORP. Charities may choose whether such examples or alternative treatments are adopted at their discretion.

Trustees’ annual report and accounts

The report and accounts, when read together, should help users of the information to understand what the charity is set up to do, the resources available to it, how these resources have been used and what has been achieved as a result of its activities.

A charity’s financial statements (accounts) focus on its financial position and financial performance in isolation, this information does not give the user a rounded overview of what has been achieved from the charity’s activities and the resources used in their delivery. The annual report and accounts taken together should provide the picture of what the charity has done or achieved or what difference it has made with the resources available Good reporting links the annual report and accounts and provides the user with valuable information about the charity.

(The SORP does not provide guidance on how an independent examination or audit should be conducted on Charity accounts or what should be included in the independent scrutiny report.)

We will now explore further trustees annual report and accounts

Trustees’ annual report

WHO: The responsibility for preparing the annual report rests with the charity’s trustees. Trustees may be supported by charity staff or advisors in the drafting of the report but the trustees must approve the final text of the report.

WHAT: The report is a vehicle for the charity to tell its story in a balanced manner and should meet the requirements of law and regulation. It should provide a review of the charity’s structure, legal purposes, objectives, activities, financial performance and financial position. The report should focus on the information relevant to stakeholders acknowledging both significant successes and failures. The presentation of the report is a trustee decision and the contents can be presented in any order under any heading they choose providing the requirements are met.

Good reporting explains what the charity is set up to do, how it is going about it, and what is achieved as a result of its work and importantly the report should provide context within which stakeholders can interpret the accounts. The report and accounts together should provide users with a rounded overview of what has been achieved from the charities activities and the resources used in their delivery. It is the charity’s shop window and is an opportunity to showcase and promote its work whilst also reporting on risks and issues.

Trustees of charitable companies must also prepare a directors’ report as required by company law; as long as the directors report contains all the information that is required by SORP then a separate trustees report is not required.

(Video) Accounting Webinar 3: Accrued (SORP) Accounts

The legal and SORP requirements do not limit the inclusion of other information within the trustees annual report and a charity may include other relevant information in the report for example, a Chairman’s Report, an environmental report or an impact assessment. This decision is the trustees.

WHY: The primary purpose of the report is to ensure that the charity is publicly accountable to its stakeholder for the stewardship and management of the funds it holds on trust.

The annual report and accounts are public record and serve many users.

When preparing the annual report trustees should consider the information needs of the primary users. The primary users may vary from charity to charity but will normally include funders, donors, financial supporters, service users and other beneficiaries.

Trustees’ annual report content

Charities who are classed as smaller charities are identified as those with income of £500,000 or 500,000 euro or less. Those above 500k are classed as a larger charity for SORP reporting.

In terms of the annual report, the reporting requirements take account of the size of the charity, with less information being required for smaller charities.

Larger charities are required to include more information in their annual report.

However, smaller charities are encourage to include some or all of the additional information required of larger charities

The SORP requires that all Charites must include the following in their annual report:

Objectives and activities
Achievements and performance
Financial review
Structure, governance and management
Reference and administration details
Exemptions from disclosure
Funds held as custodian

(Video) Super Investors Just Bought These Stocks

As explained the SORP requires further detail to be reported in the annual report. This is because there is a greater degree of public accountability and stewardship reporting is expected of larger charities; larger charities must expand their narrative providing users with more information required by the SORP. Larger charities are also required to provide further information in respect of the accounts.

Charity accounts

Charity accounts prepared in accordance with SORP must contain a balance sheet, a Statement of Financial Activities (SoFA) and explanatory notes. The SORP provides guidance for charities on how to apply the Financial Reporting Standard applicable in the UK and Republic of Ireland (currently FRS102).

Together with the annual reports, charity accounts prepared in accordance with SORP are intended to:

  • improve the quality of financial reporting by charities;
  • enhance the relevance, comparability and understandability of the information presented in charity accounts;
  • provide clarification, explanation and interpretation of accounting standards and their application to charities and to sector specific transactions; and assist those who are responsible for the preparation of the trustees’ annual report and accounts.

Do we include cash flow? As we shall see this depends upon whether the charity is large or not.

Charity accounts- policies

Accounting standards set out the basis for recognising and measuring assets, liabilities, income and expenses and for their disclosure in accounts. Charities preparing accounts in accordance with UK-Irish Generally Accepted Accounting Practice (GAAP), Financial Reporting Standard 102 (FRS102), will normally, in so doing, meet the relevant legal requirements for their accounts to give a true and fair view of their financial position and activities. It is important that charity accounts give a true and fair view so that the public can have confidence in a charity and what it sets out to do with its funds.

A charity must set out the accounting policies used that are relevant to an understanding of the accounts and the measurement bases used in preparing them. This information is intended to help users to understand how the accounts have been made up and how the figures reported in the SoFA and balance sheet have been arrived at, for example how assets have been valued or how income has been recognised. The accounting policies that a charity adopts must follow the requirements of FRS102 unless the effect of not following a particular requirement would be immaterial, or in very rare circumstances, where to do so would conflict with the objectives of providing information useful for economic decision making by users of the account and or/the legal obligation for the accounts to give a true and fair view.

Charity accounts- fund accounting

Accounting for the particular charitable funds held by a charity is a key feature of charity accounting. Each class of funds has unique characteristics in trust law.

Fund accounting distinguishes between two primary classes of fund: those that are unrestricted in their use, which can be spent for any charitable purposes of charity, and those that are restricted in use, which can only be lawfully used for a specific charitable purpose.

Charity trustees are accountable for the stewardship and management of funds held on trust. The proper administration of individual charitable funds is therefore essential if charity trustees are not to act in breach of trust. FRS102 does not deal with fund accounting by charities and so the SORP reflects the requirements of charity law in the accounting for them.

The SORP details the requirements regarding fund accounting and requires charity accounts to be presented in a way to enable users to understand the charity’s income, expenditure, assets and liabilities by class of fund. For material individual funds the accounts must disclose details of the purposes and trust law restrictions imposed for each fund.

(Video) The Mighty Nein Reunited Part 1 | Unfinished Business

Charity accounts- the Statement of financial activities (SoFA)

All charities preparing their accounts on an accruals basis to give a true and fair view of their financial activities and financial position must prepare a SoFA (the equivalent for this statement is termed statement of comprehensive income in FRS102).

The SoFA is a single accounting statement that includes all income, gains, expenditure and losses reported in the period presented by class of fund. The SoFA brings together all the resources available to the charity and shows how these have been used to fulfil the charity’s objectives. The SORP provides guidance on how charities should account for resources in the SoFA in order to provide a true and fair view.

All larger charities are required to prepare the SoFA on an activity basis. Smaller charities are encouraged to structure their SoFA on an activity basis but can opt to prepare the SoFA in another way.

The SoFA should be prepared with the needs of the charity’s stakeholders in mind and those charities that report on an activity basis should ensure that those activities reviewed in the trustees annual report are also those reported on the face of the SoFA or in the notes to the accounts.

The SoFA should assist users in understanding what resources the charity has received and expended during the period.

Charity accounts- the balance sheet

All charities preparing accruals accounts must prepare a balance sheet at the end of each reporting period which gives a true and fair view of their financial position. The balance sheet provides a snap shot statement of a charity’s assets and liabilities and how these are represented by the different classes of fund held by a charity. The SORP sets out how all charity balance sheets must be presented and provides detail on how assets and liabilities should be recognised to give a true and fair view.

(The equivalent of the balance sheet is also known as a statement of financial position in FRS102).

Charity accounts- the statement of cash flows

Whilst the requirement to produce a statement of cash flow is for larger charities the presentation of the statement is encouraged as good practice regardless of a charity’s size.

The format of the statement of cash flows must follow the requirements of section 7 of FRS102 and the SORP provides guidance for charities on this.

It is beneficial to users as it provides information that is helpful in assessing a charity’s liquidity and underlying solvency. In addition, the preparation of the statement of cash flows is valuable to a charity as it ensures the movement of its cash balances and cash position are actively considered as part of its annual reporting cycle.

(Video) Accounting Webinar 1: Overview of charity accounting rules

Charity accounts- the notes to the accounts

The SORP requires trustees to use the notes to the accounts to explain the accounting policies, provide more detail of how the income and expenditure is made up, and provide extra information about particular assets and liabilities, or about particular funds or transactions.

The SORP sets out what disclosure notes are required for different items in the charity’s accounts. The notes are required in order to provide users with further detail and explanation of items that can be traced back to the SoFA and balance sheet.


What is SORP reporting? ›

SORPs are sector-driven recommendations on financial reporting, auditing practices and actuarial practices for specialised industries, sectors or areas of work, or which supplement FRC standards and other legal and regulatory requirements in the light of special factors prevailing or transactions undertaken in that ...

What is SORP for charities? ›

Statement of Recommended Practice. applicable to charities preparing their. accounts in accordance with the Financial.

How do you write a charity report? ›

6 Top Tips for Small Charities writing their Trustees' Annual...
  1. Understand the Legal Reporting Requirements.
  2. Consider the Information Needs of your stakeholders.
  3. Demonstrate Your Impact.
  4. Design & Visuals are important.
  5. Learn from other charity TAR's.
  6. Give yourself Enough Time.
Sep 12, 2019

What is Paragraph 1.48 of the charities SORP? ›

The Charities SORP defines reserves in Charities SORP:1.48 as the total funds of the charity less any funds which are restricted and not available for the general purposes of the charity, designated amounts, commitments and funds which represent the carrying amount of fixed assets.

What is SORP compliance? ›

SORP are a set of guidelines which interpret FRS and generally accepted accounting practices (GAAP) so you can confirm your financial accounts and reporting conforms to the right standards. It is overseen by 17 members each from a charity law jurisdiction covered by GAAP and updated when/after the FRS102 is.

Is SORP mandatory? ›

Adoption of the SORP is mandatory in the charity law jurisdictions in the UK but is currently voluntary in the Republic of Ireland. The SORP-making body is grateful for the advice and input offered by the Charities Regulator which has an observer on the Charities SORP Committee.

What was one of the key objectives of introducing the Charities Act 2006? ›

The Act raises the threshold above which registration is required with the Charity Commission from £1,000 to £5,000. This is intended to reduce administration costs for small charities.

Do charity accounts need to be audited? ›

In most cases charities are governed by the Charities Act, and for incorporated charities, also the Companies Act. However, the threshold for charities to be legally required to prepare and file audited financial statements is much lower than those of private and public companies.

How do I recognize my income SORP? ›

The Charity SORP says that income must only be recognised in the accounts of a charity when all the following criteria are met: Entitlement – control over the rights or other access to the economic benefit has passed to the charity.

What are the 5 basic structure of a report? ›

The essential elements (introduction, body, conclusion, and reference list) are shown in red and bold in the table on the next page. The other elements are optional.

What are the 7 Steps of report writing? ›

How to write a report in 7 steps
  1. 1 Choose a topic based on the assignment. Before you start writing, you need to pick the topic of your report. ...
  2. 2 Conduct research. ...
  3. 3 Write a thesis statement. ...
  4. 4 Prepare an outline. ...
  5. 5 Write a rough draft. ...
  6. 6 Revise and edit your report. ...
  7. 7 Proofread and check for mistakes.
Jan 11, 2023

What are the five 5 elements of report writing? ›

What Are the Five Elements of Report Writing? Include Them for Effective Work
  • Executive Summary. An executive summary is one of the most important elements of the report writing. ...
  • Introduction. Introduction undoubtedly holds great importance to any document. ...
  • Discussion. ...
  • Conclusion. ...
  • Recommendations.
Jan 21, 2020

Are charities reportable under CRS? ›

The CRS is sometimes also referred to as the Automatic Exchange of Information (AEOI). Who does it affect? In basic terms, the legal requirements affect UK 'financial institutions' who are required to undertake due diligence on their account holders. The majority of charities will not be affected.

What is the Charities Act 2011 summary? ›

The Charities Act 2011 provides that it is a requirement of a charitable purpose that it is for the public benefit. It defines this as 'the public benefit requirement'.

What is SORP in valuation? ›

Statement of Recommended Practice (SORP) Stored Value.

When can a charity defer income? ›

This article explains that grant income can be deferred until it has been spent for it's intended purpose. While we have assigned our own intended purpose, and have stated that to the funders before they donated, neither grants come with anything you could call conditions.

Is the Charities Act 2022 in force? ›

In February, the Charities Bill received Royal Assent and passed into law as the Charities Act 2022.

What is charity accounting? ›

Charity Accounting and Financial Management. The Charity Accounting and Financial Management information stream provides practical information for staff and volunteers working in the charities sector, as well as for commissioners, funders and others that work with charitable organisations.

What is the audit threshold for charities? ›

Charity Independent Examination And Audit Thresholds

You will need a full audit if you have: income over £1 million.

What are the mandatory accounting standards? ›

They are: GAAP or Generally Accepted Accounting Procedures. IFRS or the International Financial Reporting Standards.

What is the definition of gross income for charities? ›

A charity's gross income is the total incoming resources of the charity in all restricted and unrestricted funds but excluding the receipt of any donated asset in a permanent or expendable endowment fund.

What was the effect of introducing the Charities Act 2006? ›

It removed the presumption of public benefit that had previously existed for some charities and introduced a new reporting requirement. It also stipulated that the Charity Commission raise awareness of public benefit and develop guidance for charity trustees.

Why is it important to teach children about charity? ›

Charities play an essential role in society. A charity helps people realise that it is possible to help others in a world full of uncertainties and chaos. Giving to charity gives a deeper meaning to life and helps us see our purpose to the people in our society.

What is the principle of charity and why is it important? ›

Simply put, the principle of charity tells you to treat other people as intelligent people. If you treat people as being intelligent, you will do a better job at evaluating their arguments.

What is SORP stand for? ›

Statement of Recommended Practice (SORP)

What is SORP in finance? ›

Statements of Recommended Practice ("SORPs") are developed in the public interest and set out current best accounting practice.

What is pensions SORP? ›

The pensions SORP gives guidance on best practice for financial accounting and reporting of pension schemes.

What is the purpose of a CAFR report? ›

The purpose of the Comprehensive Annual Financial Report (CAFR) is to provide accurate and meaningful information concerning the City's financial condition and performance.


1. Charities SORPs Update Webinar
(James Cowper Kreston)
2. Introduction to S Corporations & LLC's - Part 1
(Pacific Northwest Tax School)
3. Introducing the Canadian Nonprofit Sector Salary & Benefits Report: Pandemic Edition (2022)
4. Standard and Poor's NetAdvantage
5. Restricted Cash | For Balance Sheet & Cash Flow Statement
6. Napoleon Hill Think and Grow Rich Audiobook (The Financial FREEDOM Blueprint)
Top Articles
Latest Posts
Article information

Author: Msgr. Refugio Daniel

Last Updated: 04/12/2023

Views: 6034

Rating: 4.3 / 5 (74 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Msgr. Refugio Daniel

Birthday: 1999-09-15

Address: 8416 Beatty Center, Derekfort, VA 72092-0500

Phone: +6838967160603

Job: Mining Executive

Hobby: Woodworking, Knitting, Fishing, Coffee roasting, Kayaking, Horseback riding, Kite flying

Introduction: My name is Msgr. Refugio Daniel, I am a fine, precious, encouraging, calm, glamorous, vivacious, friendly person who loves writing and wants to share my knowledge and understanding with you.