ICAS responds to the Charities SORP 2026

As the public consultation phase on the revised Charities Statement of Recommended Practice (SORP) comes to an end, we share our views on the proposals.

The proposed Charities SORP 2026 is a weighty tome, growing the SORP from 200 to 300 pages. The scope and scale of the changes are reflected in the 42 accompanying consultation questions.

In our consultation response, we comment on many of the proposals in detail and in this article, we highlight our views on several key anticipated changes.

Overall, the reporting burden on charities of all sizes applying the Charities SORP will increase due to a combination of FRS 102 Periodic Review amendments and SORP specific changes. So, while the proposed SORP presents its sized based concessions more clearly than the current version, the overall message to charities is that significant effort will be needed to comply with the Charities SORP 2026, particularly in the first year of implementation.

My previous article Charities Statement of Recommended Practice 2026: The headlines provides some further information about the proposals themselves.

The Charities SORP 2026 is due to be finalised and published in early October 2025. It will be implemented for reporting periods beginning on or after 1 January 2026. All charities applying the SORP should already be taking steps to comply as FRS 102-related changes have been finalised and any major alterations to SORP-only proposed requirements are unlikely.  There may be an increase in the proposed tier 1 threshold, although this isn’t guaranteed.

Tiered reporting

We broadly support the three-tiered approach to reporting by charities. However, we’re calling for the tier 1 threshold, designed to give smaller charities applying the SORP presentation and disclosure concessions, to be increased from gross income of not more than £500,000 to gross income of not more than £1 million.

The current SORP has a two-tiered approach to presentation and disclosure concessions. The gross income threshold of £500,000 is a feature of the current SORP and predates the introduction of FRS 102 in 2015, so an inflation linked increase should be considered.

A welcome development is the inclusion of an illustrative Statement of Financial Activities based on natural classifications for use by tier 1 charities. The illustration should make this significant presentation concession more obvious. 

We’re also pleased to see the increase in the financial threshold for preparing a Statement of Cash Flows. This will become available to all charities within tier 1 and most charities within tier 2, i.e. charities with a gross income of not more than £15 million. This presentation concession, as proposed, will continue to require some charities exempted by FRS 102 to prepare a Statement of Cash Flows. We recommend that the SORP concession is aligned with the FRS 102 concession, which is based on the Companies Act 2006 definition of a small company.

Impact reporting and sustainability reporting

Impact reporting and sustainability reporting requirements are formally introduced into the trustees’ annual report.

We welcome these developments but make recommendations to enhance the clarity of what’s to be reported.

There’s an overlap between the definition of impact reporting within the Glossary of the SORP and sustainability reporting’s societal focus. Recognition of this overlap could provide a structure for setting out impact reporting and sustainability reporting requirements more clearly.

A notable omission is the absence of the term ‘impact reporting’ from module one on the Trustees’ annual report which adds to the lack of clarity about the requirements. It’s also important that the impact reporting requirements for each tier are distinct, given that tier 2 charities must comply with tier 1 and tier 2 requirements and tier 3 charities must comply with all SORP impact reporting requirements.

We also recommend that sustainability reporting requirements are met within the trustees’ annual report and not through cross-references to third party material. This will assist independent examiners and auditors, as well as accounts users, to understand what is being reported to meet the requirements of the SORP.

Disclosures about volunteers

Proposed disclosures about general volunteers in the trustees’ annual report are broadly proportionate but require refinement to ensure that what is being asked of charities is clear, particularly for tier 1 charities.

Tier 1 charities are asked to provide commentary about the activities of general volunteers, while tier 2 and tier 3 charities are additionally expected to report on the number of general volunteers supporting the charity during the reporting period. However, clarification is needed as to whether the reporting of volunteer numbers by tier 2 and 3 charities is a requirement or good practice recommendation.

Reserves

The reporting of a reserves policy and assessing ‘free’ reserves against that policy is something many charities find difficult. Proposed changes in this area aimed at assisting charities to identify their reserves, while welcome, need further refinement.

More comprehensive guidance on how to calculate reserves along with a framework for doing so would be helpful for charities. Further guidance should include clearer commentary on which elements of a charity’s funds must be included or excluded from the calculation, and where there is scope for judgement.

Revenue recognition

The introduction of the five-step model for accounting for revenue from contracts with customers has implications for accounting for non-exchange income as well as for exchange income. This has been recognised in the proposed Charities SORP. However, further refinements are needed to ensure that both the nature of the changes, and new and existing requirements are clearly understood.

We make the following key recommendations on revenue recognition:

• The level of detail in the SORP on the five-step model should be reduced to avoid the extensive duplication of material with FRS 102. This would reduce the risk introducing unintended differences between the SORP and FRS 102.
• The definitions of exchange and non-exchange income should be revisited to ensure they are mutually exclusive. Introducing a flowchart to assist charities in determining whether an arrangement results in exchange or non-exchange income would be helpful.
• We would welcome further examples to illustrate the application of the five-step model, such as how to apply the model to a contract for the provision of social care. This would be relevant to many charities and generally helpful as charities’ contracts with customers are most likely to be for services rather than goods.
• The commentary on accounting for legacy income should be revised to refer to three rather than two recognition criteria. The proposed SORP references ‘probability’ and ‘measurement’, but we recommend adding ‘entitlement’ as a separate criterion, which is the case in the current SORP. ‘Entitlement’ is implied by the proposed changes, and we see no reason for a reference to entitlement not being explicit.

Lease accounting for lessees

We view the new lease accounting requirements for lessees as potentially challenging for charities especially where a lease includes a non-exchange element. There is scope to improve and expand charity specific material on lease accounting within the Charities SORP 2026.

Similar to our comments on accounting for revenue from contracts with customers, we believe there is scope to reduce the material on accounting for leases drawn from FRS 102 to avoid duplication and the risk of introducing unintended differences between FRS 102 and the SORP.

We make the following additional key recommendations:

• Further commentary and cross-references to FRS 102 on leases below market rents is required to ensure charities understand that there is a non-exchange element to account for. This should include highlighting that where the lessor is a public body the non-exchange element is to be accounted for as a government grant, and where the grantor is not a public body that this element is to be accounted for as non-exchange income under FRS 102.
• Peppercorn or nominal arrangements may not meet the definition of a lease under FRS 102 and the Charities SORP. While this will relieve charities from applying the new lease accounting requirements to such arrangements, these arrangements give rise to a non-exchange element and further amendments are needed to the Charities SORP to assist charities navigate the related, and potentially complex, accounting requirements.

Charities may exceed the gross income criterion of the applicable audit threshold due to having to credit income with the value of non-exchange income relating to a lease at under market rents or relating to nominal or peppercorn arrangements. There is also a possibility for the gross assets criterion of the applicable audit threshold to be breached as a result of accounting for right-of-use assets arising from the single lease accounting model or accounting for a donated asset linked to a nominal or peppercorn arrangement. Charities should be mindful of this when they’re preparing their accounting entries to meet the new requirements.

In conclusion

In our concluding remarks about the proposed changes to the Charities SORP, we state that the accounting requirements now being placed on most charities preparing true and fair accounts are excessive and overly complex, particularly the lease accounting requirements.

The accounting framework for charities has evolved alongside the framework for company law and UK standard setting more generally. For charities to gain access to recognition, measurement and disclosure concessions which would be more proportionate, a commitment from government, working with the Financial Reporting Council and Charities SORP-making body, to identify and implement a solution would be needed.

For assistance with preparations for the new revenue recognition requirements and lease accounting requirements visit the homepage of the Charities SORP microsite.