What does the new SORP mean for charities’ financial reporting?

The Statement of Recommended Practice (SORP)-making body published the Exposure Draft SORP 2026: Accounting and Reporting by Charities on 28 March 2025. We are now in a period of consultation on the new draft SORP and stakeholders have until 20 June to submit their comments. The Charity SORP Committee has provided details on their consultation process on their website. 

The Charities SORP is being updated to reflect changes in the revised FRS 102 (2024), focusing on aligning revenue recognition and lease accounting with IFRSs. The SORP Committee has also taken this opportunity to address broader charity reporting issues based on sector feedback.  

What are the significant changes to Charities SORP 2026?

Some of the significant changes include:

1. A three tier reporting framework: the tiers are based on gross income levels and allow the SORP to layer up reporting requirements based on the size of the charity. The tiers comprise of:
   • Tier 1: gross income of no more than £500,000
   • Tier 2: gross income of no more than £15,000,000
   • Tier 3: gross income above £15,000,000
2. Enhanced narrative reporting requirements: there are new requirements for trustees’ annual reports on areas including impact, volunteers and sustainability. While many of the new requirements affect tier 2 and 3 charities, some narrative requirements from the previous SORP that previously only related to larger charities have been extended to tier 1 charities in this edition.
3. Revised income recognition requirements: the new income recognition rules follow the 5 step model included in the revised FRS 102 and the distinction between exchange and non-exchange transactions has been clarified. 
4. Updated requirements for leases: the updated SORP outlines the requirements of a new model for lease accounting. It includes examples that are relevant to the charity sector to help illustrate and explain the implications for charities. Peppercorn arrangements and ‘social donation’ leases are also considered in this module.
5. Statement of cash flows exemptions: the exposure draft proposes that 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 £15m. 
6. Statement of financial activities (SoFA): the updated SORP retained the option for smaller charities to choose between activity based or natural classification methods to present their SoFA. It has also given more guidance on how the reporting on a natural classification basis could look, promoting consistency between smaller charities that choose this approach.

What next for Charities SORP?

Once the consultation period is over, the finalised SORP will be published in the autumn ready to implement in periods beginning on or after 1 January 2026. 

For further advice on how to prepare for these changes, you can read our 'Preparing for change: countdown to January 2026' guide.

If you would like to discuss the updated SORP and explore ways to improve your inhouse processes, get in touch with Sharon Monteith or your usual RSM contact.