The Charity Commission for England and Wales and the Office of the Scottish Charity Regulator have recently published a draft of a proposed new Statement of Recommended Practice (SORP) for charity accounts. Charities in Scotland must follow the charity SORP when compiling their accounts and the proposed new SORP, which will take effect from 2015, contains a number of changes which will be important to bear in mind. A recent consultation on the new SORP closed earlier this week and the results of the consultation are due to be published in the spring of 2014.

The new charity SORP will become an online document and will be delivered in the form of a number of modules. Charities and those who prepare accounts on behalf of charities will be able to select only those modules that they require for their own individual set of charity accounts. This will make the SORP a much more user friendly document. The new SORP will also make more use of the terms"must","should" and"may" in order to distinguish between requirements which are obligatory, those which are considered good practice and those which are entirely voluntary.

While much of the content of the new SORP will be helpful to the charity sector and will streamline some of the existing accounting practices which have to be followed, a few proposals give rise to practical concerns.

Charity trustees in larger charities will be required to disclose material risks to which they are exposed and the steps which have been taken to mitigate against those risks. In some cases, those risks will arise out of situations which are confidential or which are commercial sensitive. If disclosed publicly in charity accounts, this could cause reputational or other difficulties for a charity. The kind of risks which would be of greatest concern might include strained relationships between a charity and its key funders, or litigation which is sensitive and confidential. It would not be in a charity's best interests to disclose such material risks when they arise and we believe that the SORP should say so specifically.

Charity trustees will also require to say much more about accounts prepared on a going concern basis. For some charities, the charity trustees will require to be better informed on the difference between liquidity and solvency in order to help them to make adequate going concern statements and the charity sector must be alive to the need for ongoing education of charity trustees throughout their time on the board.

Other practical issues arise from the identification of the amount of residuary legacies which have been intimated to charities, the difficulty in quantifying and valuing the role and contribution of general volunteers to charities, and the adjustment of multi-year grants for the time value of money. These and other practical issues will need close attention both from charity trustees and from the preparers of charity accounts if they are included in the SORP when it reaches its final version.

To find out more about the proposals for the new charity SORP, follow the link to and to read our response to the SORP Committee of the Charity Commission, click here.

For more information the preparation of charity accounts or on the issues which arise from the exposure draft of the new Charity SORP, please contact Gavin McEwan, Deputy Head of our Charities Legal Team on 0131 228 8111 or at

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