What is SORP?
SORP is a set of recommended practices issued by the Charity Commissioners in the UK to advance and maintain standards of reporting in the charity sector. It assists those involved in the preparation of the accounts and trustees annual report of a charity. SORP is relevant to charity auditors and independent examiners. Users of SORP should be familiar with accounting concepts, principles and practice. SORP is a modular based approach and was made effective 1st January 2015.
The old GAAP Requirements
- GAAP Financial Statements
- Auditors report
- Directors report
- Statutory based
- Minimal info about Charity
- Comply with Co Law
- Income & Expenditure Account
- Balance Sheet
- Cash Flow Statement (CLbyG)
The new SORP Requirements
- Auditors report
- Trustees Annual Report
- Increased detail regarding the organisation
- Qualitative Info
- Opportunity to tell the story
- Statement of Financial Activities
- Balance Sheet
- Cash Flow Statement
- Notes to the Financial Statements
How do you change to SORP?
- Map your income types
- Identify the direct costs associated with each income type
- Assess the salaried positions associated and allocate cost
- Consider the base of allocating cost
- Look at your existing reserves: Can they be split between restricted and unrestricted funds?
- What are your policies around reserves, income and expenditure
Charities and Requirement for Audit
Under company legislation, charities which are registered companies limited by guarantee cannot avail of audit exemption, regardless of their size.
Incomes & Endowments
Donations, gifts and legacies: Donations include all income received by the charity that is, in substance, a gift made to it on a voluntary basis. Legacies are included when receivable by the charity.
Income from charitable activities: includes income earned from the supply of services or goods under contractual arrangements and also income from performance related grants when the conditions are satisfied.
Income from other activities: includes income generated from both trading activities to raise funds for the charity and income from fundraising events.
Income from investments: includes income generated from holding assets for investment purposes and includes dividends, interest, and rents from investment property.
Other income includes all other sources of income, and may include gains on disposal of programme related investments or gains on disposal of assets.
Expenditure on raising funds: includes all expenditure incurred by a charity to raise funds for its charitable purposes.
Charitable activities: includes all costs incurred by a charity in undertaking activities that further its charitable aims for the benefit of its beneficiaries.
Other: includes all expenditure that is neither related to raising funds for the charity nor part of its expenditure on charitable activites. Governance costs will now be included in this category and explained in the notes to the accounts.
Support Costs: While some costs relate directly to a single activity, the cost of certain central or regional support functions may be shared across more than one activity undertaken by the charity.
For example payroll administration, information technology costs etc must be apportioned across the three SoFA activity headings.
The charity must adopt a consistent and reasonable approach when allocating support costs. The SORP sets out a number of examples for apportioning costs. (Staff numbers, floor space etc).