The Charities Statement of Recommended Practice (SORP) provides a charity accounting and reporting framework.
The Charities SORP is designed to ensure consistency, transparency, and compliance with relevant financial reporting standards. SORP is regularly revisited and updated to ensure it’s still fit for purpose and can meet evolving challenges and the changing not-for-profit landscape.
The Financial Reporting Council (FRC) completed its latest Periodic Review of FRS 102. Several amendments were made that will take effect from 1 January 2026.
We’re working with our clients to ensure they understand the changes and how they might impact their work.
Key Changes
The 2025/26 SORP updates align with amendments to FRS102. These bring the UK standards more in line with the International Financial Reporting Standards (IFRS).
The changes include:
Revised Lease Accounting
One of the most significant changes is the accounting treatment of operating leases. Charities are required to bring these leases onto their balance sheet to reflect their status as a right-of-use asset with a corresponding lease liability. This change ensures greater compatibility between organisations with leased and owned assets.
Exemptions are applied to short-term leases and leases of low-value assets, which means they can remain off-balance sheet. The exemptions that are granted to micro-entities that are reporting under FRS 105 are not available to charities.
Revenue Recognition
A five-step revenue recognition model is being introduced for all contracts with customers. This requires organisations to identify goods and services that are promised to the customer, along with the amount of consideration it will be entitled to in return. This can be made verbally or in writing. Charities receiving income from contracts or performance-related grants may be impacted by these changes.
Changes to the timing of revenue recognition may result in the charity’s total income changing during the reporting period. In some cases, this might mean that thresholds that otherwise wouldn’t normally be crossed end up being crossed, such as the audit threshold. To take account of these changes, opening reserves may need to be adjusted, or comparatives restated.
Trustee Narrative Reporting
Trustees are also encouraged to provide a clearer narrative on how resources are used, and any implication of changes in lease accounting. This might include setting out the strategic rationale for any leasing arrangements and their overall impact on financial sustainability.
Your Next Steps
To ensure you are ready for the upcoming changes to the Charities SORP, it’s important to begin preparing over the coming weeks.
A comprehensive inventory of all current leases should be created, categorising them under the existing framework and listing their terms. The impact of new lease accounting standards on your balance sheet and Statement of Financial Activities should be estimated. This should include the potential effects on depreciation, rental costs, or compliance with bank covenants. Review your income streams and contracts to identify performance conditions and other obligations to ensure that revenue is appropriately recognised under the updated rules.
Your finance teams and trustees must understand the changes and their potential impact with training provided where necessary. Professional advice should be sought so that potential scenarios are realistically modelled and ensure that any changes to asset and liability values are understood.
By spreading the workload, planning, and staying informed, charities can ensure a smooth transition to the new requirements.
Specialist financial and compliance services for the not-for-profit sector
The regulatory landscape for charities is always changing. Navigating these changes can be challenging. At Wilder Coe, we provide a comprehensive range of services for the charities and not-for-profit sector, that bring a fresh perspective to assist you with compliance and to help you achieve your goals. Whether you’re looking for further information and advice about the changes to Charities SORP, or another financial or regulatory matter, we can help.
When working with us, you will receive a highly specialised, bespoke service, bringing years of experience to help you constructively resolve any issues that may arise. We work with charities and social enterprises of all sizes to help them maximise their impact on their beneficiaries in an increasingly complex world.
Contact us today for further advice and information.
