It has been a busy week within the charity & non-profit sector, with four key updates: Charity SORP, HE/FE SORP, Charity Governance Code and scrutiny threshold changes. Here’s what you need to know:
Charity SORP
The Statement of Recommended Practice (SORP) 2026 was officially released on 31 October, confirming the introduction of significant updates that will impact how charities prepare their financial statements. These changes are designed to improve transparency and ensure consistency across the sector.
The SORP 2026 will be mandatory for reporting periods beginning on or after 1 January 2026 with charities ending 31 December 2026 being the first year fully impacted. Key updates include changes to lease accounting, income recognition, tiered reporting, trustees’ annual reports, and an exemption from preparing cash flow statements.
Further & Higher Education SORP
The revised Statement of Recommended Practice – Accounting for Further and Higher Education Board (FEHE) SORP followed on 3 November. The implementation date for SORP 2026 is the same as the Charity SORP so will impact Summer 2027 year ends onwards.
The most significant changes are the revisions to lease accounting and revenue recognition as embedded into FRS 102. The FEHE SORP also clarifies guidance on government grants, non-exchange transactions, and financial statement presentation, encourages ESG disclosures, and enhances requirements for service concession arrangements and pension schemes. There is also comprehensive transition guidance.
Charity Governance Code
A refreshed Charity Governance Code strengthens focus on behaviours and inclusion. The updated Charity Governance Code sets out eight core principles for charity boards. It helps trustees think about how they work together, make decisions and manage risk. It highlights how ethics, decision making and inclusion support strong governance.
Charities are encouraged to start using the new Code now. It helps boards review how they work and identify where they can improve. Trustees should also include a short statement in their annual report explaining how they use the Code.
Audit & independent examination threshold changes
Also published on 31 October, to ease the burden on smaller charities, the Department for Culture, Media and Sport (DCMS) announced that audit and independent examination thresholds will increase:
Income audit threshold: £1.5 million (up 50% from £1 million).
Balance sheet audit threshold: £5 million in assets and £500,000 income (up from £3.26 million and £250,000 respectively).
Independent examination income threshold: £40,000 (up from £25,000).
These changes are not expected to come into effect until at least 1 October 2026 as a statutory instrument will be required to implement the changes. Charity Commission guidance to accompany these will be updated in due course.
PEM responses
“It is great to finally have the new SORPs and our team are busy analysing the differences in the final versions. PEM advise over 250 clients impacted by these and they now have clarity. This is a big shift in financial reporting and the burden is on the organisations themselves to ensure they follow the new requirements. Charities and non-profits need to start thinking now about how these changes will flow through into future periods, as well as their impact on management accounts, budgets and forecasts.” Nikki Loan, Partner
“The changes apply to accounting periods commencing on, or after 1 January 2026 so it is expected the majority of charities will adopt for December 2026 year ends onwards. Next steps should focus on collating a comprehensive list of all leases within the organisation and their core terms (e.g., length, payment profile, break clauses etc.), alongside an assessment of all income streams against the new five step recognition principles. Organisations should begin to document these comprehensively to arrive at conclusions around the proposed accounting treatment for each lease and type of income, which would be a starting point for the accounts preparation and audit.” Grace Quist-Therson, Director
“I welcome the larger-than-expected 50% rise in the audit threshold for charities in England and Wales which is welcome news and will lead to reduced costs for many charitable organisations. It aligns logically with the recent 50% rise in corporate thresholds. At the same time, the threshold above which charities must seek independent examination of their accounts – an external verification which is a lighter touch than a full audit – will rise from £25,000 to £40,000 of income. This move will both simplify matters and save costs for the smallest charities, of which we have many in our region.” Michael Hewett, Partner
“We finally have clarity on the key changes to both SORPs, which will now flow through to the Recommended Cambridge College Accounts (RCCA) for 2027-year ends. We look forward to supporting our College clients on this journey.” Kelly Bretherick, Partner
“Whilst I welcome these changes, it’s a missed opportunity to not increase the tiered reporting thresholds for smaller charities, meaning many of these charities will get dragged into significantly more onerous reporting requirements. It’s also disappointing that the disclosures for higher paid staff continue with a starting benchmark of £60,000 which is the same figure introduced in the 2005 SORP more than 20 years ago.” David Widdowson, Assistant Manager
Please note that this content is not intended to give specific technical advice. It is designed to highlight some of the key changes rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
