A major overhaul of charity financial reporting is on the horizon, as significant updates to the Charities SORP come into play from 1st January 2026.
While changes to audit thresholds and FRS 102 have already been confirmed, we’re still awaiting the final draft of the SORP changes due this autumn.
However, the direction of travel is clear, and charities should start preparing now. SORP changes will impact how charities prepare accounts, the level of scrutiny they face, and how their financial health is presented.
What’s changing with the Charities SORP?
The current system has two main tiers for reporting, which means some smaller charities face a disproportionate reporting burden, while the largest charities could stand to provide more detail. To rectify this, a new three-tier system is being introduced to make reporting fairer and more proportionate to a charity’s size and complexity. This means some charities won’t need to provide as detailed reporting, but larger charities will be required to do more.
The tiers are based on gross income levels and allow the SORP to layer up reporting requirements based on the size of the charity.
- Tier 1 covers charities with gross income of no more than £500,000
- Tier 2 covers charities with gross income up to £15 million
- Tier 3 covers charities with gross income above £15 million
How will these changes affect my charity?
One significant change is around cash flow reporting. Only charities in tier 3 will be required to prepare a statement of cash flows under the new SORP. This means that the income threshold for preparing this statement has lifted from £500,000 to £15 million – a significant change that will reduce the reporting burden for many medium-sized charities.
There’ll also be a stronger emphasis on impact, risk and governance. Trustees will be asked to provide more commentary on financial resilience and reserves, as well as the charity’s value and effectiveness. Requirements will differ across the tiers, with tier 3 charities providing the most detail.
The biggest technical change comes from FRS 102 and relates to how operating leases, for things like buildings and equipment, now need to be disclosed. Previously, these would have been recorded as an expense in your profit and loss account. From 2026, they will now be brought onto the balance sheet. While there are some exceptions to this, for many charities this will significantly impact their balance sheet.
Although we’re still awaiting the finer details on SORP, with January just around the corner and FRS 102 and audit thresholds already confirmed, some clients have chosen to adopt these changes early before more new rules come into play.
What do you need to do right now?
First and foremost, don’t panic – there’s still time to prepare for these changes ahead of the new year. The best thing to do is discuss your specific situation with us. We can provide tailored advice on how these changes will affect you.
Navigating these changes effectively requires your accounts and audit to be perfectly aligned, so having a partner that delivers both can make all the difference.
When we prepare your accounts, we build in future requirements from the very beginning, ensuring the correct data is captured. This proactive approach means there are no surprises or last-minute data hunts, and ultimately, it’s a smoother process that gives you peace of mind.
With just months to go until these changes come into play, it’s time to take action. Get in touch with your Champion contact today and we’ll guide you through the process, ready for the new year.
