STATEMENT OF RECOMMENDED 
PRACTICE NO. 2 (SORP 2)

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In an attempt to improve the quality of, and reduce the diversity of financial reporting by charities the Charity Commission, together with the main accountancy bodies, have produced a Statement of Recommended Practice, (SORP 2).

All charities will be expected to comply with the SORP. The impact it will have on your accounts depends on the size and complexity of your organisation.

Charities whose gross annual income exceeds £250,000 will be expected to comply with the SORP in full. Smaller charities will have some flexibility in applying the SORP.

What are the main effects of the SORP ?

1. You may be required to prepare a Statement of Financial Activities (SOFA).

This differs from the normal income and expenditure account in that it deals with receipts of a capital nature.

It also reflects changes in the value of investment assets which have not yet been sold, for example, changes in share prices.

It distinguishes expenditure in furtherance of the charities objects from costs of generating funds.

Funds brought forward from previous years and funds carried forward will be shown on the face of the statement.

2. The SORP also identifies unrestricted funds which can be applied to the charities general objects and restricted funds which have to be used in a particular way.

3 . If the organisation hold any investments the market value of these will now have to be reflected in the accounts.

4. There will be an increase in notes to the accounts to disclose all the information required by the SORP and charities legislation.

5. The trustees of all registered charities will have to file an annual report. For those whose income exceeds £250,000 per annum the report will have to be fairly detailed.

What should we be doing about complying?

Establish the size of your organisation- what is your expected total income for the year?

Plan your annual report well in advance. As the accounts will form part of the report your auditor/ examiner may need to have sight of it to ensure the information given in it does not conflict with the accounts.

Think about how you will allocate certain items of expenditure. Will you need to apportion some of the costs between direct charitable expenditure and management and administration costs?

Identify money that you have been given or raised that has restrictions on its use.

Think about how your accounting and administrative systems will need to be altered to accommodate the new reporting requirements.

Arrange a meeting with your treasurer, finance committee and/or auditor / examiner to discuss areas of which you are unsure.