FRS 102 amendments: Charities and not-for-profits

The Financial Reporting Council (FRC) has issued substantial amendments to FRS 102, aligning UK GAAP more closely with international standards. For charities, this means changes to the Charities Statement of Recommended Practice (SORP), which is built on FRS 102.

The revised SORP is expected to be published in Autumn 2025, with the changes taking effect from accounting periods beginning on or after 1 January 2026.

Two headline changes stand out:

Charities will need to adopt a structured five-step model based on IFRS 15. This could significantly affect how and when income from donations, grants, and contracts is reported.

Operating leases will now appear on the balance sheet, following a model based on IFRS 16. Only short-term and low-value leases will remain off-balance sheet.

These changes are more than technical updates, they’ll reshape how charities present their financial position and performance. For example:

• Income recognition may require a rethink of existing policies, especially for organisations receiving multi-year grants or performance-based funding
• Lease accounting will increase reported assets and liabilities, potentially triggering audit thresholds for smaller charities

There’s also a new emphasis on non-exchange transactions, such as subsidised leases, which will now be recognised as incoming resources and factored into asset values.

Beyond income and leases, the revised FRS 102 introduces several other updates that charities should note:

• Fair value measurement: Enhanced guidance may affect how charities value certain assets and liabilities
• Software and intangible assets: Clarifications around recognition criteria for internally generated intangible assets could impact how charities account for such assets
• Disclosure requirements: A move toward a three-tier reporting framework based on charity size is expected, aiming to improve proportionality and consistency

While the principles of charity reporting remain, the practical implications of these changes are significant. Finance teams and trustees should start preparing now to avoid last-minute compliance challenges.

Here’s what we recommend:

• Review your income recognition policies, especially for grants and donations
• Assess your lease portfolio and understand how new rules will affect your balance sheet
• Engage with auditors and advisors early to clarify how the changes apply to your organisation
• Update internal systems and train staff to ensure smooth implementation

At S&W, we understand the unique challenges facing the charity sector. Our team is already working with clients to interpret the new standards and prepare for the revised SORP.

Whether you need help reviewing policies, assessing leases or planning your transition, we’re here to collaborate and support you every step of the way.

Reach out to your usual S&W contact or speak to our charity specialists to discuss how we can work together.