Financial Reporting for Charities
Charities are required to prepare their annual financial statements in accordance with a financial reporting framework. This allows the charity to present its financial results and to meet its filing requirements with its Charity Regulator and the relevant companies filing office where applicable (e.g. Companies Registration Office/Companies House). Depending on the size and nature of the charity in question, there may be different options available to the charity regarding the financial reporting framework to be used in preparing their annual report. In addition to this, some charities will be incorporated as companies and some will be unincorporated (for example a trust) which will bring different reporting requirements.
Choice of Financial Reporting Framework
A charity registered in the Republic of Ireland or the UK may choose to apply one of several financial reporting frameworks to prepare their annual report. Typically, this would result in a choice between (or a mandatory selection of) one of the following frameworks.
Reduced Disclosure Frameworks
Reduced disclosure frameworks such as FRS 105 and Section 1A of FRS 102, are typically not suitable for organisations such as charities, due to the increased need for accountability and transparency which are fundamental to the operation of a charity. They may also provide an insufficient level of detail to the stakeholders of the charity.
In the United Kingdom, Company Law precludes a Charity from applying FRS 105.
How do charities choose which Financial Reporting Framework to apply?
In some instances, a charity may be required by legislation to apply a certain framework (or may be prevented by legislation from applying a certain framework). In other instances, a charity may be required to apply a certain framework as a condition imposed on it or may voluntarily choose to report under a framework.
Charities incorporated as companies in the Republic of Ireland or the UK, in addition to the requirements set out in charity legislation, will also be subject to the same company size limits and thresholds as other non-charity companies in their jurisdiction.
Charity SORP
In the Republic of Ireland, the Charity SORP is not yet mandatorily applicable and therefore its application is voluntary for charities who may wish to apply it. The Charities Amendment Act 2024, once commenced, will introduce new accounting regulations which will standardise the format of financial statements for charities, as well as setting the limits at which SORP reporting will be required for charities in the Republic of Ireland. Other factors may also determine whether a charity applies the SORP (for example, a stakeholder might request that the charity applies the SORP).
In the UK, all charities who prepare accruals accounts must follow the Charity SORP. This includes charities incorporated as companies, as they are required by company law to prepare accruals accounts that give a true and fair view.
For UK charities which are not incorporated as a company, the limit at which they must apply accruals accounts are set in each jurisdiction. These limits are summarised in Appendix 3 of the SORP. From time to time the relevant threshold limits may be changed and readers should be mindful that Appendix 3 of the SORP may not be updated immediately following such changes.
The Charity SORP is written for charities and supplements FRS 102 with charity specific guidance and recommendations to be used in applying the standard. It introduces some additional disclosures above those required in FRS 102 and requires an entity to present its primary financial statements in a format which is different from normal trading entities. As charities who apply the SORP will still be preparing their financial statements under FRS 102, there may be additional disclosures which will be required by the charity over and above those set out in the Charity SORP.
The Charity SORP is updated from time to time, and it is important that the correct version is used for the relevant reporting period. This includes.
- Charity SORP 2019 edition- applicable for periods commencing before 1 January 2026. This became effective for periods commencing on or after 1 January 2019 and incorporated the first Periodic Review amendments for FRS 102.
- Charity SORP 2026 edition- applicable for periods commencing on or after 1 January 2026 and incorporates the amendments arising from the second Periodic Review of FRS 102. See our news item from January 2026 which discusses some of the changes included in the 2026 edition of the Charity SORP.
FRS 102
FRS 102 is available for Irish and UK charities to use, provided another framework, such as the Charity SORP, is not required to be used.
An important definition which is included in the FRS 102 standard is that of a “public-benefit entity”, which is defined as “An entity whose primary objective is to provide goods or services for the general public, community or social benefit and where any equity is provided with a view to supporting the entity’s primary objectives rather than with a view to providing a financial return to equity providers, shareholders or members”. Some paragraphs in FRS 102 carry the prefix “PBE” and these paragraphs should be applied to public benefit entities only.
Financial Reporting considerations for charities
Regardless of the financial reporting framework used, charity financial statements present some issues which are typically not encountered by for-profit entities, or which are encountered by for-profit entities, but have a different prominence in the context of a charity. These include:
Revenue recognition
Charities will often be in receipt of revenue which is different in nature to the type of revenue generated by for-profit companies. Revenue such as cash donations, donated goods and services, grant income, legacies etc will need to be accounted for in accordance with the financial reporting framework used. Charities may have a mix of income from “exchange transactions” and “non-exchange transactions” which will need to be accounted for in accordance with their specific accounting requirements.
Fixed assets which are held for service potential
Charities tend to hold more assets for their service potential (ie. to achieve its objectives without necessarily generating net cash flows). Where this occurs, there are some specific accounting considerations which need to be factored in, including the measurement of impairment of such assets.
Government grants
Given their nature, charities are more likely to be in receipt of government grants. Where this occurs, the specific accounting rules of the standard being applied must be considered. Where a charity applies the charity SORP they will be limited to applying the “performance model” only when accounting for government grants. Where FRS 102 is being applied, the charity will be permitted to apply either the “performance model” or the “accruals model”.
Heritage Assets
These are defined as “Tangible and intangible assets with historic, artistic, scientific, technological, geophysical, or environmental qualities that are held and maintained principally for their contribution to knowledge and culture”. Although heritage assets could be held by both charitable and non-charitable companies, charities might be more likely to hold such assets (for example, a museum operating as a charity might recognise its collection of artefacts as heritage assets). Where charities believe that they hold heritage assets, they should first assess whether the asset meets the definition of a heritage asset and where it does it should then apply the specific rules as set out in the financial reporting framework for these assets. If applying FRS 102 then section 34 contains some specific rules for Heritage Assets.
Concessionary loans
Charities in receipt of concessionary loans whereby a favourable interest rate is applied to a loan for the purposes of furthering the objectives of the charity must account for these loans using specific rules in relation to concessionary loans.
Social donation leases and peppercorn leases
These refer to leases whereby the lessee is required to pay less than the market value rent to lease an asset. Where this occurs, the lessee will need to consider how this should be accounted for in accordance with the relevant accounting standard applied.
Restricted funds
Charities may hold funds which are restricted or unrestricted. Restricted funds are held for specific charitable purposes and contain restrictions or conditions regarding how they can be used, spent or applied by the trustees. Where such funds are held, then there may be a requirement for charities to present these separately. For example, if applying the Charity SORP, module 2 sets out some specific requirements in relation to how they must be accounted for.
These pages are provided as resources and information only and nothing in these pages purports to provide professional or legal advice or definitive legal interpretation(s) or opinion(s) on the applicable legislation or legal or other matters referred to in the pages. If the reader is in doubt on any matter in this complex area further legal or other advice must be obtained. While every reasonable care has been taken by the Institute in the preparation of these pages, we do not guarantee the accuracy or veracity of any resource, guidance, information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein. The Institute is not responsible for any errors or omissions or for the results obtained from the use of the resources or information contained in these pages.
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