How will the new charities SORP affect your academy?

Whilst there is no need to panic – we know many finance staff are only just getting used to the complex nature of the current financial statements – this new standard will change the way your accounts look and introduce some additional disclosures.

In response to FRS 102, in July the Charity Commission released a new charity SORP, the document which all charities refer to. The EFA have started to look at how the new SORP will affect academies, and have recently released a short guide to provide an overview of the main changes and to highlight the specific actions you should consider now. Next year a new Accounts Direction will be produced based on the FRS 102 SORP.

The new SORP will not come into force until periods commencing on or after 1 January 2015 and, whilst you will be comforted to know that there should not be significant changes, the main changes you should be aware of are summarised below:

Trustees’ report

A few minimal changes to the trustees’ report, including a new requirement to explain arrangements and policies for setting the pay and remuneration of the academy trust’s key management personnel. Exactly who is included as key management personnel will depend on the specific circumstances, but in most single academy trusts it is likely to capture the members, trustees, and the senior leadership team. In a multi-academy trust scenario principals and senior leadership teams of individual academies could potentially also be included.

Disclosure of key management remuneration.

The total paid to key management personnel will need to be disclosed. Given the contentious nature of the current staff trustee disclosure requirements, this additional requirement, which could result in the need to disclosure the salaries of School Business Managers, Principal Finance Officers, and Deputy Headteachers, is unlikely to prove popular.

De-facto trustees

Many academies have struggled to come to terms with the meanings and responsibilities of the roles of member, trustee, director and governor under company and charity law. The new SORP introduced a definition of ‘de-facto trustees’ ie. a person who has not been validly appointed as a trustee but is acting as a trustee of the charity and is exercising the functions that could only be properly discharged by a trustee. For your academy, this will capture any school governors who have not officially been appointed as a director/trustee, but who attend trust board meetings.

Related party transactions

The new SORP clarifies that any transactions involving a trustee or other related party must now always be
regarded as material transactions, potentially meaning further disclosures.

Additionally, the new SORP requires disclosure of the terms and conditions of any related party transactions, and states that a related party transaction should not be described as being ‘at arm’s length’ unless this can be substantiated.


The headings under which income is categorised have been changed to five broad headings, although this is more of a change of title rather than a change to the basis of classification.

More importantly, income will be recognised in the accounts when it becomes ‘probable’ (ie. more likely than not) rather than when it becomes ‘virtually certain’, which could mean income being recognised earlier than at present.

The new SORP also introduced new terminology when describing income and refers to two broad categories of income: income from exchange transactions (contract income eg. from letting out sports facilities) and income from non-exchange transactions (gifts including donations and grants, for example, GAG funding). You will need to be aware of the definitions when it comes to classifying new income streams.

SOFA comparatives

Comparative figures will be required for all SOFA columns, instead of solely the total funds. This means you will need to include comparative figures for all fund types, either on the SOFA or in a note.

Governance costs

These will no loner be disclosed on the face of the SOFA, but will be included within charitable activities as support costs.

Software licences

Any software licences that extend beyond one year and have been capitalised as fixed must be classified as ‘intangible’ rather than ‘tangible’.

Holiday and sick pay accruals

Should any academy trust have a holiday year which is not coterminous with the financial and academic year, it will be necessary to accrue for any outstanding paid annual leave or sick leave.

Timing of the changes

Although the SORP 2015 is effective for accounting periods commencing on or after 1 January 2015 it may require some thought before then.

Established trusts, ie. trusts incorporated before 1 January 2015, will first use the new SORP during the preparation of their accounts for the year ended 31 August 2016.

Any new trusts whose date of incorporation falls between 1 January 2015 and 1 March 2015 will need to apply SORP 2015 earlier – for the period ending 31 August 2015.

Most academy trusts will therefore adopt the new SORP in 2016. However, this means that the transition date – 1 September 2014 – has already passed.

This early transition date arises because academy trusts preparing their financial statements for the year ended 31 August 2016 will need to restate the comparative figures from their financial statements for the year ended 31 August 2015, but also  their opening balance at 1 September 2014 to reflect any changes to accounting policies under SORP 2015.

In practice this should again not affect most academies.  Academy trusts will have the option, on the first time adoption of SORP 2015, of revaluing fixed assets to fair value. You could therefore elect to revalue your school land and buildings, which would impact on the trust’s Balance Sheet and future depreciation charges. Any advantage is likely to be negligible, and will probably be outweighed by the cost of obtaining a formal valuation.

In conclusion, this is a bit of a ‘watch this space’, and it should become clearer in the coming months how academies will be affected. For now, we simply recommend that you:

  • check you understand when you will first need to adopt SORP 2015 (likely to be for the period ending 31 August 2016) and when your transition date is (1 September 2014 for adoption dates of 31 August 2016);
  • revisit your accounting policies;
  • consider whether you would wish to revalue any fixed assets, and obtain appropriate valuations at the transition date;
  • check that the holiday year for staff runs from 1 September to 31 August to determine whether holiday pay accruals may be an issue;
  • consult us if you have any questions!

The full EFA guide can be downloaded at: EFA academies SORP guide

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