Rui Domingues celebrates the publication of FRS 102, and looks forward to the shaping of the new Sorp.
In March, Financial Reporting Standard 102 (FRS102) was published by the Financial Reporting Council (FRC). This document will replace the 3,000 pages of Generally Accepted Accounting Practice in the UK (UK GAAP).
It may not have felt like it at the time, but the day of publication was a significant date for the sector, for two reasons.
Firstly, the issuing of this 300-odd page document marks the end of several years of consultation. Many professionals in the sector, along with those from other industries, have been involved in making sure that this all-encompassing standard is right for charities.
Without engaging in this process, we could have ended up with a new set of standards designed purely around profit-making entities. FRS102 could have destroyed the improvements to reporting already made over the last 20 years through the sector’s own Sorp.
In my view, this would have placed unnecessary and over-complex requirements on accounts preparers, without any benefit to the users of those accounts.
Being heard
Although SORP 2005 shoehorns us into the existing accounting framework quite nicely, UK GAP has never properly taken into account the not-for-profit sector.
However, as a result of the sector’s engagement in the three-year consultation process for FRS102, the subtleties of our sector have arguably been recognised at a higher level than ever before within the upper echelons of the FRC.
A specific public-benefit-entity (PBE) standard was consulted on in 2011 and many of the comments made in that process have been included in FRS102, as notes to PBEs.
By the way, this is how the new accounting framework refers to us, so we need to get used to this label, on top of the others we already use.
To highlight how we were listened to by the FRC, just look at the requirement to value all donated goods, which had been in the original draft FRS .
This would have been a massive headache for charities, but was avoided because the FRC listened and was receptive to the technical points that were raised by the sector during the consultation process. Secondly, the issuing of FRS102 doesn’t mark the end of the process.
In fact, for sector finance professionals, this is the starting point for greater involvement in shaping the new Sorp for charities.
Sorp 2005 will pass its sell-by date when FRS102 comes into effect and a new Sorp will be needed.
Delays in the process of setting FRS102 have impacted on the work to produce the new Sorp and the draft is now expected in July this year.
With its publication, the work of charities and umbrella bodies will inevitably step up. As the new chair of Charity Finance Group’s Technical Accounting Forum (TAF), I am conscious that we need to get our engagement with members right on this crucial issue.
But few of us will have the time to read a 300-page technical document, let alone fully digest the implications and ramifications of each clause for our charities and the wider sector.
Groups like TAF bring together standard-setters, auditors and those responsible for finance in charities to contribute to this debate, while also obtaining the thoughts and comments of others not involved in the group.
All change
The FRS102 process has shown that standard-setters are willing to listen to our concerns. We need to carry this into the Sorp-updating phase.
So, read FRS102 and get to grips with the new rules. Think about what the users of your accounts need from your financial statements, and get involved with sector bodies that are looking at the new Sorp.
We are seeing the biggest changes to charity reporting in years and we need to get it right. Sector network bodies enable the views and experiences of the very people responsible for taking this forward to be heard.
After all, no one knows better how this will work and what the impact will be than those that have to use it in practice. If you’re reading this, that means you and me.
Rui Domingues is finance director at Friends of the Elderly
