The long-awaited exposure draft of the 2026 Charity Statement of Recommended Practice (SORP) was released in March, introducing significant changes to charity accounting and reporting requirements. This article provides an overview of some of the key changes.
The draft SORP, which will be effective for accounting periods starting on or after 1 January 2026, is currently open for public consultation until Friday 20 June 2025.
Why this matters
For charity finance teams, now is the time to familiarise themselves with these proposed changes and consider how they might impact future reporting requirements. Understanding the tiered system and which requirements apply to your organisation will be essential for smooth implementation when the new SORP takes effect.
A new tiered approach
Perhaps the most substantial structural change is the introduction of a three-tier reporting system based on charity income:
- Tier 1: Charities with income up to £500,000
- Tier 2: Charities with income between £500,000 and £15 million
- Tier 3: Charities with income above £15 million
This tiered approach aims to make reporting requirements more proportionate to charity size, aligning more closely with updated Companies Act reporting standards for small, medium, and large companies. Different reporting requirements will apply to each tier across five key areas:
- Trustees' Annual Report
- Statement of Financial Activities
- Allocating costs by activity
- Disclosure of trustee/staff remuneration and related transactions
- Statement of cash flows (only required for Tier 3 charities)
Major accounting changes
The draft SORP incorporates two significant accounting changes from the updated FRS 102:
- New lease accounting requirements: The distinction between operating and finance leases for lessees will be removed, with more leases now being recognised on the balance sheet.
- Revenue recognition for exchange transactions: A new five-step model will be introduced, focusing on when control of goods/services transfers to the customer.
Key updates
Trustees' Annual Report
- Restructured for improved clarity and usability
- Enhanced impact reporting through prompt questions
- New sustainability reporting is required for Tier 3, and encouraged for Tiers 1 and 2
- Extended volunteer information requirements
- Improved reserves reporting and connection to financial statements
Fund accounting
- Additional guidance on restricted funds
- Requirement to disclose legal powers used to amend restricted funds
- Clarification on designated funds and trustees' power to remove designations
Statement of Financial Activities (SOFA)
- Maintained two reporting approaches: natural classification for smaller charities and activity-based for larger charities
- New illustrative examples for natural classification reporting
- Tier 1 charities can use simplified SOFA with generic income and expenditure headings rather than reporting by charitable activity
Income recognition
- Updated to align with FRS 102 changes, with separate sections for exchange and non-exchange transactions
- Modified legacy recognition guidance
Statement of cash flows
- Now only required for Tier 3 charities, reducing reporting needed bysmaller and medium-sized organisations
Benefits for smaller charities
The SORP development has included consideration for smaller charities and the work required, with a "Think Small First" approach that aims to reduce the burden on these organisations. Benefits include:
- A more proportionate approach through tiered reporting
- Enhanced guidance on receipts and payments options for eligible charities
- Simplified SOFA reporting with natural classification
- Exemption from cash flow statement requirements for Tiers 1 and 2
Consultation opportunities with CFG
CFG is actively supporting charities to respond to these proposed changes. We are preparing a detailed consultation response based on insight from a significant number of charities. We are capturing that insight through:
- CFG survey: CFG has launched a survey to collect views from charities on the new SORP provisions. This provides an accessible way for organisations to share their feedback on how the proposed changes might impact their reporting practices.
- SORP consultation meetings: CFG is hosting four dedicated SORP consultation meetings, offering charities the opportunity to discuss the exposure draft in detail and provide direct feedback to be shared with the SORP-making body.
These consultation opportunities are crucial parts of the development process, ensuring that the views of as many charities as possible are considered in any final changes to the SORP, so that it reflects the practical needs and concerns of charities of all sizes.
The 2026 SORP represents a significant evolution in charity accounting, seeking to balance transparency and accountability with proportionality. The changes aim to improve financial reporting quality while considering the diverse needs of different sized charities and their stakeholders.
By participating in CFG's survey and consultation meetings, charities have a valuable opportunity to help shape the final version of the 2026 SORP, ensuring it works effectively across the sector while maintaining high standards of transparency and accountability.
The Exposure Draft is available for review, and all interested parties are encouraged to engage with the consultation process before it closes on 20 June 2025.