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CHARITIES SORP (FRS 102)(second edition - October 2019)Accounting and Reporting by Charities:Statement of Recommended Practiceapplicable to charities preparing theiraccounts in accordance with the FinancialReporting Standard applicable in the UKand Republic of Ireland(FRS 102)(effective 1 January 2019)Secretariat to the Charities SORP

Crown copyright 2019 – first edition published 2014.ISBN 978 1 84508 528 5Published by CIPFA on behalf of the Joint SORP-Making Body: the CharityCommission for England and Wales, the Charity Commission for Northern Irelandand the Office of the Scottish Charity Regulator.You may re-use this information (excluding logos and images) free of charge inany format or medium, under the terms of the Open Government Licence. Youmust re-use it accurately and not in a misleading context. The material mustbe acknowledged as Crown copyright and you must give the title of the sourcedocument/publication. Where we have identified any third party copyrightmaterial you will need to obtain permission from the copyright holders concerned.This document/publication can also be viewed at www.charitysorp.orgAny enquiries regarding this document/publication should be sent to:CIPFA \ The Chartered Institute of Public Finance and Accountancy77 Mansell Street, London, E1 8AN020 7543 5600 \ customerservices@cipfa.org \ www.cipfa.orgPrinted by The Complete Product Company, Malmesbury

CHARITIES SORP (FRS 102)ContentsACCOUNTING AND REPORTING BY CHARITIES: THE STATEMENT OF RECOMMENDED PRACTICE(SORP) – SCOPE AND APPLICATION.1INTRODUCTION. 1THE INTENDED USER OF THE SORP. 2OBJECTIVES OF THE SORP. 2THE INTENDED USER OF THE TRUSTEES’ ANNUAL REPORT AND ACCOUNTS. 3SCOPE OF THE SORP. 3THE EFFECTIVE DATE OF COMMENCEMENT. 4TRANSITIONAL ARRANGEMENTS FOR CHARITIES REPORTING UNDER FRS 102FOR THE FIRST TIME. 6CHOICE OF ACCOUNTS PREPARATION METHODS. 6HOW TO USE THE MODULAR SORP. 6USE OF THE TERMS ‘MUST’, ‘SHOULD’ AND ‘MAY’. 7INDEX OF SORP MODULES.9STATEMENT BY THE FINANCIAL REPORTING COUNCIL ON THE CHARITIES SORP (FRS 102)(SECOND EDITION – OCTOBER 2019). 111. TRUSTEES’ ANNUAL REPORT. 12OVERVIEW AND THE PURPOSE OF THE TRUSTEES’ ANNUAL REPORT. 12WHO IS RESPONSIBLE FOR PREPARING THE TRUSTEES’ ANNUAL REPORT?. 13REPORTING BY SMALLER CHARITIES. 13THE CONTEXT FOR REPORTING. 13THE CONTENT OF THE TRUSTEES’ ANNUAL REPORT REQUIRED OF ALL CHARITIES. 14THE PROVISION OF OTHER INFORMATION. 16THE ADDITIONAL CONTENT REQUIRED OF LARGER CHARITIES. 172. FUND ACCOUNTING. 22INTRODUCTION. 22GENERAL PRINCIPLES OF FUND ACCOUNTING. 23TRANSFERS BETWEEN FUNDS. 26FUND DISCLOSURES IN THE NOTES TO THE ACCOUNTS. 273. ACCOUNTING STANDARDS, POLICIES, CONCEPTS AND PRINCIPLES, INCLUDING THEADJUSTMENT OF ESTIMATES AND ERRORS. 29INTRODUCTION. 29WHAT ARE ACCOUNTING STANDARDS, POLICIES, CONCEPTS AND PRINCIPLES?. 29LENGTH OF THE REPORTING PERIOD. 30PRESENTATION CURRENCY. 31GOING CONCERN. 31MATERIALITY. 31OFFSETTING. 32SOURCE OF REPORTING AND ACCOUNTING DISCLOSURE REQUIREMENTS. 32ALTERNATIVE MEASUREMENTS TO FAIR VALUE. 32SELECTION OF ACCOUNTING POLICIES. 32COMPLIANCE WITH THE SORP. 33CHANGES IN ACCOUNTING POLICIES. 33CHANGES IN ACCOUNTING ESTIMATES. 34Page iii

Accounting and Reporting by CharitiesCORRECTION OF A PRIOR PERIOD ERROR. 34DISCLOSURE OF ACCOUNTING POLICIES, CHANGES IN ESTIMATION TECHNIQUESAND PRIOR PERIOD ERRORS. 34COMPARATIVE INFORMATION. 364. STATEMENT OF FINANCIAL ACTIVITIES. 37INTRODUCTION. 37PRESENTATION OF INFORMATION. 39LINE HEADINGS USED IN THE STATEMENT OF FINANCIAL ACTIVITIES. 435. RECOGNITION OF INCOME, INCLUDING LEGACIES, GRANTS AND CONTRACT INCOME. 50INTRODUCTION. 50UNDERSTANDING THE NATURE OF INCOME. 50GENERAL RULES FOR INCOME RECOGNITION. 52GENERAL PRINCIPLES FOR RECOGNISING INCOME FROM DONATIONS AND GRANTS. 52IDENTIFICATION OF TERMS AND CONDITIONS. 52PERFORMANCE-RELATED CONDITIONS. 53OTHER TERMS AND CONDITIONS THAT LIMIT THE RECOGNITION OF INCOME. 53DEFERRING INCOME WHERE CONDITIONS THAT LIMIT RECOGNITION ARE NOT MET. 54TERMS AND CONDITIONS THAT DO NOT PREVENT RECOGNITION. 54RECOGNISING INCOME FROM LEGACIES. 55INCOME FROM DONATED GOODS, FACILITIES AND SERVICES. 56INCOME FROM CONTRACTS FOR THE SUPPLY OF GOODS AND SERVICES. 56INCOME FROM MEMBERSHIP SUBSCRIPTIONS. 58INCOME FROM INTEREST, ROYALTIES AND DIVIDENDS. 58SETTLEMENT OF INSURANCE CLAIMS. 58DISCLOSURES AND NOTES TO THE ACCOUNTS. 586. DONATED GOODS, FACILITIES AND SERVICES, INCLUDING VOLUNTEERS. 60INTRODUCTION. 60INCOME RECOGNITION CRITERIA. 60MEASUREMENT BASES. 61ACCOUNTING FOR DONATED FACILITIES AND SERVICES, INCLUDING VOLUNTEERS. 61ACCOUNTING FOR DONATED GOODS AND SERVICES CAPITALISED AS TANGIBLEFIXED ASSETS. 62ACCOUNTING FOR DONATED GOODS FOR DISTRIBUTION TO BENEFICIARIES. 62ACCOUNTING FOR DONATED GOODS FOR RESALE. 63DISCLOSURES IN THE NOTES TO THE ACCOUNTS. 647. RECOGNITION OF EXPENDITURE. 65INTRODUCTION. 65GENERAL RULES FOR THE RECOGNITION OF LIABILITIES AND EXPENDITURE. 65RULES ON MEASUREMENT OF LIABILITIES. 66PRINCIPLES FOR RECOGNISING LIABILITIES FROM CONSTRUCTIVE OBLIGATIONS. 66CONDITIONS THAT LIMIT THE RECOGNITION OF A FUNDING COMMITMENT. 67ACCOUNTING FOR LIABILITIES ARISING FROM PERFORMANCE-RELATED GRANTS. 68PROVISIONS FOR LIABILITIES. 68TREATMENT OF COMMITMENTS NOT RECOGNISED AS PROVISIONS OR LIABILITIES. 69ACCOUNTING FOR ONEROUS CONTRACTS. 69TREATMENT OF EMPLOYEE BENEFITS. 70Page iv

CHARITIES SORP (FRS 102)DISCLOSURE OF PROVISIONS AND FUNDING COMMITMENTS IN THE ACCOUNTS. 718. ALLOCATING COSTS BY ACTIVITY IN THE STATEMENT OF FINANCIAL ACTIVITIES. 72INTRODUCTION. 72GENERAL PRINCIPLES FOR REPORTING ACTIVITIES. 72IDENTIFICATION OF SUPPORT COSTS. 73METHODS OF ALLOCATING COSTS TO ACTIVITIES. 73ACCOUNTING FOR COSTS SHARED BETWEEN FUNDRAISING AND CHARITABLE ACTIVITIES. 74DISCLOSURES REQUIRED IN THE NOTES TO THE ACCOUNTS. 749. DISCLOSURE OF TRUSTEE AND STAFF REMUNERATION, RELATED PARTYAND OTHER TRANSACTIONS. 76INTRODUCTION. 76DISCLOSURE OF TRUSTEES’ REMUNERATION AND BENEFITS. 76DISCLOSURE OF TRUSTEES’ EXPENSES. 77TRANSACTIONS WITH RELATED PARTIES THAT REQUIRE DISCLOSURE. 78TRANSACTIONS WITH RELATED PARTIES THAT DO NOT REQUIRE DISCLOSURE. 78DISCLOSURE OF RELATED PARTY TRANSACTIONS. 79DISCLOSURE OF AUDIT, INDEPENDENT EXAMINATION AND OTHER FINANCIALSERVICE FEES. 80DISCLOSURE OF EX-GRATIA PAYMENTS. 80DISCLOSURE OF STAFF COSTS AND EMPLOYEE BENEFITS. 80REMUNERATION AND BENEFITS RECEIVED BY KEY MANAGEMENT PERSONNEL. 8110. BALANCE SHEET. 82INTRODUCTION. 82STRUCTURE OF THE BALANCE SHEET. 82A: FIXED ASSETS – HEADINGS, CLASSIFICATION AND DISCLOSURES. 84B: CURRENT ASSETS – HEADINGS, CLASSIFICATION AND DISCLOSURES. 92C: LIABILITIES (C1 TO C3) – HEADINGS, CLASSIFICATION AND DISCLOSURES. 94D: FUNDS OF THE CHARITY (D1 TO D5) – CLASSIFICATION AND DISCLOSURES. 9711. ACCOUNTING FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES. 98INTRODUCTION. 98HOW ALL CHARITIES ACCOUNT FOR BASIC FINANCIAL INSTRUMENTS. 99THE ACCOUNTING TREATMENT FOR TRANSACTIONS INVOLVING EXTENDED CREDIT TERMS.100HOW TO IDENTIFY A BASIC FINANCIAL INSTRUMENT UNDER FRS 102.100SUBSEQUENT MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES.101IMPAIRMENT OF FINANCIAL ASSETS.101ACCOUNTING FOR CONCESSIONARY LOANS MADE OR RECEIVED.101ACCOUNTING FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES WHICH DO NOTMEET THE FRS 102 DEFINITION OF BASIC FINANCIAL INSTRUMENTS.102EXAMPLES OF OTHER FINANCIAL INSTRUMENTS.102DISCLOSURES TO BE MADE IN THE NOTES TO THE ACCOUNTS.10312. IMPAIRMENT OF ASSETS. 105INTRODUCTION.105WHAT TO DO IF IMPAIRMENT IS INDICATED.105IDENTIFICATION OF THE RECOVERABLE AMOUNT.105INDICATORS OF IMPAIRMENT.107Page v

Accounting and Reporting by CharitiesACCOUNTING FOR IMPAIRMENT LOSSES AND REVERSALS.107DISCLOSURES TO BE MADE IN THE NOTES TO THE ACCOUNTS.10813. EVENTS AFTER THE END OF THE REPORTING PERIOD. 109INTRODUCTION.109ADJUSTING EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD.109NON-ADJUSTING EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD.110DISCLOSURE IN THE ACCOUNTS FOR NON-ADJUSTING EVENTS AFTER THE END OF THEREPORTING PERIOD.11014. STATEMENT OF CASH FLOWS. 111INTRODUCTION.111STRUCTURE OF THE STATEMENT OF CASH FLOWS.111WHAT CASH FLOWS ARE INCLUDED AS OPERATING ACTIVITIES?.112WHAT CASH FLOWS ARE INCLUDED AS INVESTING ACTIVITIES?.112WHAT CASH FLOWS ARE INCLUDED AS FINANCING ACTIVITIES?.113THE METHODS OF COMPILING THE STATEMENT OF CASH FLOWS.113TEMPLATE FOR A STATEMENT OF CASH FLOWS.114DISCLOSURES IN THE NOTES TO THE ACCOUNTS.11415. CHARITIES ESTABLISHED UNDER COMPANY LAW. 118INTRODUCTION.118PREPARATION OF THE DIRECTORS’ REPORT.118REQUIREMENT FOR AN INCOME AND EXPENDITURE ACCOUNT.119PREPARATION OF A COMBINED STATEMENT OF FINANCIAL ACTIVITIES AND INCOMEAND EXPENDITURE ACCOUNT.119SUMMARY INCOME AND EXPENDITURE ACCOUNT.120ADDITIONAL CONSIDERATIONS THAT APPLY WHEN CONSOLIDATED (GROUP)ACCOUNTS ARE PREPARED UNDER COMPANY LAW.121DISCLOSURE OF EQUITY ON THE BALANCE SHEET.121DISCLOSURE OF REVALUATION AND FAIR VALUE RESERVES (UK ONLY).12116. PRESENTATION AND DISCLOSURE OF GRANT-MAKING ACTIVITIES. 122INTRODUCTION.122HOW CHARITIES MUST PRESENT GRANT-MAKING ACTIVITIES IN THEIR ACCOUNTS.122HOW TO PRESENT GRANT-MAKING AND SUPPORT COSTS.123ACCOUNTING FOR ACTIVITIES PARTLY UNDERTAKEN THROUGH GRANT-MAKING.123THE TREATMENT OF GRANTS TO INDIVIDUALS.123THE DISCLOSURE OF GRANT-MAKING ACTIVITIES IN THE NOTES TO THE ACCOUNTS.123THE EXEMPTIONS TO DISCLOSURE.125INFORMATION REQUIRED IN CASES OF SERIOUS PREJUDICE.125THE STATUTORY EXEMPTION APPLICABLE IN ENGLAND AND WALES.12617. RETIREMENT AND POST-EMPLOYMENT BENEFITS. 127INTRODUCTION.127ACCOUNTING FOR DEFINED CONTRIBUTION PLANS.127ACCOUNTING FOR DEFINED BENEFIT PLANS.128FUND ACCOUNTING FOR DEFINED BENEFIT PLANS.128FUND ACCOUNTING AND THE TREATMENT OF A DEFINED BENEFIT PLAN SURPLUSOR DEFICIT.128Page vi

CHARITIES SORP (FRS 102)ACCOUNTING FOR MULTI-EMPLOYER DEFINED BENEFIT PLANS WHICH HAVE BEENTREATED AS DEFINED CONTRIBUTION PLANS.129DISCLOSURES IN THE ACCOUNTS RELATING TO PLANS ACCOUNTED FOR AS DEFINEDCONTRIBUTED PLANS.130DISCLOSURES IN THE ACCOUNTS RELATING TO DEFINED BENEFIT PLANS.13018. ACCOUNTING FOR HERITAGE ASSETS. 131INTRODUCTION.131DEFINITION OF A HERITAGE ASSET.131RECOGNITION AND MEASUREMENT OF HERITAGE ASSETS ON THE BALANCE SHEET.132HOW TO MEASURE HERITAGE ASSETS THAT HAVE BEEN PURCHASED.133HOW TO MEASURE HERITAGE ASSETS THAT HAVE BEEN DONATED.133DEPRECIATION AND IMPAIRMENT OF HERITAGE ASSETS.134ACCOUNTING TREATMENT FOR HERITAGE ASSETS RECOGNISED ON THE BALANCE SHEET .134DISCLOSURES REQUIRED FOR ALL CHARITIES HOLDING HERITAGE ASSETS.134DISCLOSURE OF HERITAGE ASSETS RECOGNISED ON THE BALANCE SHEET.135DISCLOSURE OF HERITAGE ASSETS NOT RECOGNISED ON THE BALANCE SHEET.135DISCLOSURE OF A FIVE-YEAR SUMMARY OF TRANSACTIONS.13619. ACCOUNTING FOR FUNDS RECEIVED AS AGENT OR AS CUSTODIAN TRUSTEE. 138INTRODUCTION.138ACCOUNTING FOR FUNDS HELD AS AGENT.139DISTINGUISHING CONSORTIA OR SIMILAR ARRANGEMENTS INVOLVINGA ‘LEAD’ CHARITY.139DISCLOSURE OF FUNDS RECEIVED AS AGENT OR HELD AS CUSTODIAN TRUSTEE.14020. TOTAL RETURN (INVESTMENTS) – (ENGLAND AND WALES ONLY). 141INTRODUCTION.141THE ACCOUNTING TREATMENT.142DISCLOSURES REQUIRED IN THE NOTES TO THE ACCOUNTS WHERE PERMANENTENDOWMENT IS INVESTED ON A TOTAL RETURN BASIS.142DISCLOSURES REQUIRED IN THE TRUSTEES’ ANNUAL REPORT.14421. ACCOUNTING FOR SOCIAL INVESTMENTS. 145TYPES OF SOCIAL INVESTMENT AND INCOME RISK SHARING ARRANGEMENTS.145PROGRAMME RELATED INVESTMENTS.146MIXED MOTIVE (MIXED PURPOSE) INVESTMENTS.146ETHICAL INVESTMENT POLICIES.147SOCIAL INVESTMENTS IN PROPERTY (LAND AND BUILDINGS).147CONCESSIONARY LOANS.147ACCOUNTING FOR GUARANTEES.148THE PRESENTATION OF SOCIAL INVESTMENTS IN THE INVESTING CHARITY’S ACCOUNTS.148THE RECLASSIFICATION OF A SOCIAL INVESTMENT AS A FINANCIAL INVESTMENT.148HOW TO MEASURE SOCIAL INVESTMENTS.148IMPAIRMENT OF SOCIAL INVESTMENTS.149ACCOUNTING FOR IMPAIRMENT LOSSES.149ACCOUNTING FOR GAINS ON DISPOSAL.150INFORMATION TO BE PROVIDED IN THE INVESTING CHARITY’S TRUSTEES’ANNUAL REPORT .150DISCLOSURES IN THE NOTES TO THE ACCOUNTS.150Page vii