Are you ready for the latest updates on Charities SORP? 

Effective January 1st 2026, new Charities Statement of Recommended Practice (SORP) financial reporting standards apply. These reflect updates in FRS 102 and will change the way charities that apply the SORP in full prepare and present their trustees’ annual report and financial statements.

The most significant impacts are in revenue recognition and lease accounting, where charities may need to recognise and disclose information that was not previously included in financial statements. The overall goal is to provide stakeholders with a clearer and more transparent picture of charity finances.

Bitesize briefing

New SORP modules have been introduced on:

• provisions, contingent liabilities and contingent assets and funding commitments (10A)
• lease accounting (reflecting major changes in FRS 102 lease accounting) (10B)

A clearer revenue recognition model now applies for distinguishing between exchange and non-exchange transactions.

Transparency requirements are enhanced for donated goods, facilities, and services.

The SORP clarifies that charities below certain thresholds may use receipts and payments accounts.

New tier system

One of the biggest changes introduced for 2026 is a new classification system for defining charity size and reporting responsibilities, which assigns charities into the following tiers based on gross income:

• Tier 1: Gross income not more than €500,000
• Tier 2: Above €500,000 but not more than €15 million
• Tier 3: Above €15 million

The key changes to know about

Module 2: Fund accounting

Trustees must be more transparent about fund movements and the legal basis for any changes to fund restrictions.

In particular, SORP now requires explicit disclosure of the legal powers used to amend or remove restrictions on funds.

Module 4: Statement of Financial Activities

Tier 1 charities may use natural classification (grouped by nature), while Tiers 2 and 3 must present income and expenditure by activity, with clearer presentation of joint ventures/associates in terms of income and balance sheet value.

Module 5: Revenue recognition, including contract income and income from legacies and grants

The revised SORP aligns the way charities undertake revenue recognition with the recent update to FRS 102, focusing on when a charity meets the relevant criteria that applies to a particular type of income. One key enhancement is a clearer distinction between the revenue charities receive from exchange contracts and non-exchange transactions.

Where a contract gives rise to exchange income, the revised SORP adopts the five-step model now in place following updates to FRS 102.

• Step one – identify the presence of a contract with a third party
• Step two – identify the performance obligations in the contract
• Step three – determine the transaction price
• Step four – allocate the transaction price to the performance obligations in the contract
• Step five – recognise income when or as the charity satisfies a performance obligation

The fresh challenge for charities under SORP is not just in following the new model FRS102 sets out, but in explaining judgements made.

Charities must provide a rationale as to how performance obligations are identified and monitored, and how judgements were applied where the timing of revenue recognition differs from cash receipts.

The criteria for income from non-exchange transactions, such as grants or donations, remain the same. Income is recognised when it is probable and measurable, and where entitlement exists.

The revised SORP reiterates that income from legacies must be recognised when it is probable that the legacy will be received and its value can be measured reliably. Where uncertainties exist, for example where there are probate delays, disputes or property sales, material judgments must be disclosed.

Module 6: Donated Goods, Facilities and Services, Including Volunteers

Charities must now recognise and value the benefit of donated or below-market leases as income and as an asset, increasing both transparency and the reported value of in-kind support. Donated goods must only be recognised as income when the value of the incoming resources can be measured reliably and economic benefit is derived.

Module 8: Allocating Costs by Activity in the SoFA

Support costs must be recognised not as “bad” or wasteful, but as essential to service delivery and allocated to activities on a reasonable, consistent basis. Charities must disclose totals, allocation methods, and amounts apportioned to each activity.

Module 9: Disclosure of Trustee and Staff Remuneration, Related Party and Other Transactions

SORP allows omission of trustee or senior staff names for personal safety, without needing to explain the omission, with consistent treatment across related party disclosures.

Module 10B: Lease Accounting

To provide greater transparency over the real economic value charities receive from premises that they often occupy at below-market rates, the changes within SORP now require charities to recognise and disclose the value of in-kind support from below-market leases. Increased reporting of income and assets gives users a clearer picture of the nature and impact of these arrangements.

The new standard distinguishes between two types: Peppercorn Arrangements and Social Donation Leases.

Peppercorn Arrangements

If the payment is truly nominal, the arrangement may not meet the FRS 102 definition of a lease and is treated as a donation of an asset or service (reported under Module 6). The charity accounts for the full value of the donated benefit, with any nominal payment recorded as an expense.

Social Donation Leases

Where rent is below market rate but more than nominal, the lease is considered to contain a "non-exchange component", i.e. an embedded donation. Subsequently, the charity must recognise both the lease liability and a right-of-use asset that includes the value of the discount received.

The lease term, any restrictions, and the presence of reversion clauses must also be disclosed.

For rolling leases where there is a short-term arrangement, the charity must explain the enforceable period and non-cancellable period, and whether the lease qualifies for short-term exemption.

Any key judgements made in classifying and valuing these leases, which may then determine the value of any donation element, must also be disclosed.

Module 10A: Provisions, contingent liabilities and contingent assets and funding commitments

This new module consolidates all requirements and explanations for provisions, contingent liabilities, and funding commitments. In other words, it streamlines the process of reporting liabilities and commitments that were previously scattered across other modules.

Module 14: Statement of Cash Flows

The income threshold for mandatory cash flow statement preparation within SORP has increased from €500,000 to € million. According to the new tier system, that means Tier 1 and Tier 2 charities are no longer required to prepare a cash flow statement under SORP, significantly reducing the reporting burden for mid-size charities.

New supplier finance disclosures now apply where any third party (e.g. bank or finance partner) pays charity suppliers directly. Under new requirements, the charity must disclose the terms, amounts, and impact on working capital of any such arrangements. In contrast to other changes, this change applies from 1 January 2025.

Module 21: Accounting for Social Investments

Charities must disclose all investments made for both mission and financial return as social investments (including loans, guarantees and equity), with SORP requiring clearer judgement and disclosure of policies and performance, particularly for Tiers 2 and 3.

How we can help

Our not-for-profit audit and accounting advisory service can help you embed new Charities SORP changes into your day-to-day operations and financial reporting, as well as advise on setting up your processes and training your key people.

Crowe Ireland provides expert advisory services to numerous charities and other not-for-profit organisations. To learn more about the impact of new regulations from a compliance and financial reporting perspective and how we can help you, get in touch today.