Charity SORP essentials for Oxford Colleges

The consultation on the new SORP concluded on Friday 20th June 2025. It is likely that the final version will be published no later than autumn 2025 for an effective date of 1 January 2026.

For Oxford colleges this means the new SORP will be applicable for the first time for the year ending 31 July 2027. This feels like a long way away, but when a new SORP is applied for the first time there are ‘retrospective applications’ resulting in restatements for the comparative period and adjustments to opening balances at the start of the prior year (so year ended 31 July 2026 and 1 August 2025 respectively).

The upcoming changes to the Charities SORP (and FRS 102 that impact on charities) will have challenges, but it is also an opportunity to improve processes and aid transparency, for example regarding income contracts and lease agreements.

Key changes in the Exposure Draft SORP (and their potential impact on colleges)

Tiering

The Exposure Draft SORP introduces the concept of tiers based on charity size (annual income). Tier 1 will cover smaller charities, being those with annual income under £500,000. Tier 2 will cover charities whose income falls between £500,000 to £15 million and tier 3 will apply to any charities with annual income in excess of £15 million. Those in tier 3 will face the most onerous reporting requirements and tier 1 the simplest.

Trustees’ report/Governing body report

There are a number of changes required in the governing body report as outlined below:

• Impact reporting: This has been an increasing trend in the charity sector and the new SORP places an increased onus on tier 2 and tier 3 charities to explain how their work has benefited society as a whole. The trustees’ report module of the Exposure Draft SORP includes prompt questions for trustees to consider and that either should or must be answered in the report, depending on the tier being applied.
• Sustainability reporting: This is a new section for the governing body report. Charities in tiers 1 and 2 are now encouraged to explain how they are responding to and managing environmental, governance and social matters. It is proposed that charities within tier 3 must explain how they are responding to and managing all these matters
• Volunteer disclosures: Some of the disclosure requirements related to volunteers have been relocated to the governing body report from the notes to the financial statements. In addition, the Exposure Draft SORP extends the existing requirement for larger charities to provide a narrative explanation of the scale and nature of activities undertaken by volunteers to charities in all tiers.
• Reserves: The Exposure Draft SORP proposes an updated definition of (free) reserves in the glossary and further clarity about the relevant disclosure requirements for the governing body report. Where the reserves figure quoted in the report is not readily apparent from the financial statements a reconciliation must be provided in the funds note or a separate note. As many colleges hold both expendable and permanent endowments, their interaction with the reserves policy may become more important in this disclosure.
• Future plans: In the current SORP, larger charities must provide a summary of their plans for the future. The Exposure Draft SORP proposes to extend this requirement to charities in all tiers.
• Legacies: The Exposure Draft SORP proposes a new requirement for tier 2 and tier 3 charities to provide a narrative explanation of how legacies are included in the accounts. This is to help users of the accounts to understand that a legacy may be recognised as income before the resources are received.

Income

• Under the new requirements in FRS 102, a five-step revenue recognition model will be introduced for all contracts with customers. This requires colleges (and their subsidiaries) to identify the distinct goods or services promised to the customer (verbally or in writing) and the amount of consideration it will be entitled to in return. This may affect colleges and their subsidiaries receiving income from contracts (particularly design and build contracts) or certain performance-related grants. As a result, the timing of revenue recognition may change. These changes can be reflected by restating comparatives or by amending the opening reserves.
• Following the changes to income recognition in the updated FRS 102, the SORP income module has been split into two main sections: section one deals with exchange transactions (and the changes as a result of the updated FRS 102 requirements) and section two deals with non-exchange transactions (e.g. donations, legacies, gifts in kind).
• The Exposure Draft SORP also includes additional guidance on information sources for charities developing their accounting policy for legacy income.

Leases

• The Exposure Draft SORP contains a module on lease accounting following on from the updated lease accounting requirements introduced by the new version of FRS 102. The distinction between operating and finance leases will be removed for lessees, meaning that more leases will be recognised on the balance sheet (asset and liability).
• The new SORP module includes more examples than other modules of the SORP to help illustrate new requirements, recognising the additional complexity of some of the new requirements.
• The new leasing module also has detail about how to treat lease arrangements where the payments are below market rate. While the new SORP cannot cover all possible situations, it sets out the principles that should be considered to help determine the substance of the arrangements and the correct accounting treatment.

Cash flow statements

• Currently only charities with income under £500,000 are exempt from preparing a cash flow statement. The Exposure Draft SORP proposes increasing this threshold to £15 million (tier 3).
• Note that tier 1 and 2 charities who do not meet the small entity criteria defined by FRS 102 (which also cover total assets and number of employees) will still be required to prepare a statement of cash flows.

Total return

This module has been updated to reflect changes in the Charities Act 2022, which now permits trustees to invest permanent endowments in social investments. This may have a negative or uncertain financial return, provided that any losses are offset by gains made elsewhere in the relevant fund. Where such investments are made, new disclosures are required to help users of the accounts to understand the effect of making such investments and to give assurance that any losses made on such investments are covered by gains in the fund.

Practical steps to undertake now (or soon)

1. Analyse lease commitments: Create a list of all current leases, categorising them as operating or finance leases under the current framework and listing the terms and conditions of the lease agreement. Estimate how the new lease accounting standards might affect your balance sheet and Statement of Financial Activities (e.g. increased depreciation, reduced rental costs). Also consider the impact of the changing recognition, for example for bank covenants (or on whether the college breaches the asset-related audit threshold).
2. Assess income streams and contracts: Conduct a detailed review of your college and subsidiaries’ income streams to identify those with performance conditions, especially those that span multiple accounting periods. For each revenue stream, document any performance obligations and their associated transaction values per the contract. This will help in determining when income should be recognised under the new rules.
3. Strengthen financial reporting processes: Ensure that your college is collecting the necessary data, such as detailed lease terms, and performance metrics for contractual income. Provide training for finance staff and trustees to understand the upcoming changes and their implications.
4. Engage early with professional advisers: Consult with your auditors and advisers early to understand how the changes may affect your college’s specific circumstances, for example by modelling potential scenarios to ascertain how asset and liability values might be impacted by the changes and understand potential knock-on effects.
5. Stay informed: Regularly check for updates on the Charities SORP consultation, for example by reading our newsletters/email bulletins (along with those published by the regulators) and registering for relevant training events and webinars. Being informed will help you anticipate specific requirements. If your college has specific concerns or unique circumstances, please feel free to contact us.

We will also be publishing a series of thought leadership pieces on key aspects of the new SORP, alongside a bespoke seminar for Oxford Colleges to support your preparations.