Year End Accounts - Accounting Policies
This support article provides guidance on how to complete the 'Accounting Policies' section for Year End Accounts.
Before creating accounts, you must complete all of the year-end checks needed to ensure the financial data in your accounts is correct - find out more.
Template wording is included in this article, however, if you have any questions about completing any of the fields within this section, you will need to contact your Independent Examiner. Whilst our support team is always happy to help with software-related questions, accounting questions need to go to your Independent Examiner.
ExpensePlus does not provide advice on how to create accounts, and it is each organisation's own responsibility to ensure that their charity accounts comply with the law, taking professional advice as necessary.
This is only applicable for churches and charities that create accounts on an Accruals basis
Basis of Preparation
Template Wording:
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These financial statements have been prepared on a going concern basis and under the historical cost convention. The financial statements have been prepared in accordance with Accounting and Reporting by Charities: Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (“the Charities SORP”), the Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”) and the Charities Act 2011. The charity meets the definition of a public benefit entity under FRS 102. The Charities (Accounts and Reports) Regulations 2008 (“the 2008 Regulations”) require charities to prepare their accounts in accordance with the SORP effective from 1 April 2005. That SORP has been withdrawn and replaced by the Charities SORP. The charity has prepared these financial statements in accordance with the new Charities SORP; this departure from the 2008 Regulations is believed to be necessary for these financial statements to give a 'true and fair view’. The principal accounting policies adopted in the preparation of the financial statements are set out below. |
If any assets have been revalued, update the first sentence to:
"These financial statements are prepared on a going concern basis, under the historical cost convention as modified by the revaluation of certain assets, which are measured at fair value through the Statement of Financial Activities.
If the accounting basis for the prior year was Receipts & Payments (rather than accruals), an additional paragraph is needed:
"The previous year's accounts were prepared using the receipts and payments basis but, this year, the charity was obliged to prepare its accounts using the accruals basis. The results for the prior year, which are comparatives quoted in these accounts, have been restated using the accruals basis"
Your Prior Year figures will also all require re-stating on an accruals basis. Find out more.
Going Concern
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The trustees (who are the charitable company's directors for the purposes of company law) have assessed whether the use of the going concern basis is appropriate and have considered possible events or conditions that might cast significant doubt on the ability of the charity to continue as a going concern. The trustees have made this assessment for a period of at least one year from the date of approval of the financial statements. In particular the trustees have considered the charity's forecasts and projections, and the possible implications should projected income and / or expenditure vary unexpectedly. The trustees have concluded that there is a reasonable expectation that the charity has adequate resources to continue to operate for the foreseeable future. The charity therefore continues to adopt the going concern basis in preparing its financial statements. |
Where the charity isn't a charitable company, "(who are the charitable company's directors for the purposes of company law)" can be removed from the above wording.
Where there is recent going concern uncertainty, an additional disclosure will need to be included in this section.
Typically additional wording:
"Though the charity has ended the year with net current liabilities of £[amount], the trustees are confident that the charity will be able to continue to operate and the financial statements have been prepared on the going concern basis. Measures are being taken to reduce expenditure and increase income and the trustees are confident that the charity will be able to eliminate the net current liabilities referred to above over the next two years. In the interim the trustees are monitoring cash flows and will, if the need arises, take the loans offered by some church members so that the charity is able to settle its liabilities as they fall due."
Fund Accounting
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Unrestricted income funds comprise those funds which the trustees are free to use for any purpose in furtherance of the charitable objects. Unrestricted funds include designated funds where the trustees, at their discretion, have set aside resources for a specific purpose. Restricted funds are funds which are to be used in accordance with specific restrictions imposed by the donor or the term of specific appeal. Further explanation of the nature and purpose of each fund is included in the notes to the accounts. |
Incoming Recognition
Template Wording:
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Income including investment income is recognised in the period in which the charity becomes entitled to receipt, the amount receivable can be measured with reasonable certainty, and receipt is probable. Income is generally recognised when it is received. Income is only deferred when the charity has to fulfil conditions before becoming entitled to it or where the donor has specified that the income is to be expended in a future period. Income from donations and legacies includes: 1) Recoverable Gift Aid. This is recognised when the related donation is received. Gift aid that has not been recovered by the balance sheet date is included as a debtor. 2) Donated facilities, services and goods. Goods donated for distribution to beneficiaries are recognised as income when receivable at fair value (being an estimate of the amount it would cost to purchase those items). Facilities, services and goods donated for the charity's own use are recognised as income when receivable at their value to the charity. The charity relies on volunteers to carry out many of its activities, however, in accordance with the SORP, the value of these services has not been included in these financial statements as they cannot be reliably measured. When donated goods, services and facilities are distributed or consumed, an expense in respect of those items is included in the Statement of Financial Activities. At the year end any goods that have not been distributed or consumed are recognised as stock; donated fixed assets are capitalised. 3) Legacies. Income from legacies is recognised when a distribution is received from the estate or, if earlier, when the charity has been notified that a distribution will be made and the amount receivable can be measured reliably.
The charity has taken the view that it has only one charitable activity, and all income from donations, legacies and charitable activities are in respect of this one activity. |
The wording in some of these paragraphs will need to be customised, and sections that aren't relevant should be removed. For example, if there are no legacies, references to legacies can be removed. Similarly, if there isn't any income relating to a particular income type (e.g. trading activities), then that section can also be removed.
Expenditure Recognition
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Expenditure is recognised on an accruals basis once there is a legal or constructive obligation to make a payment to a third party, it is probable that settlement will be required, and the amount can be measured reliably. Expenditure includes any irrecoverable VAT and is classified under the following principal categories:
Grants payable are recognised when the charity has made a commitment to the recipient that creates a constructive obligation, which is normally when the offer has been communicated without conditions outside the charity’s control. Grants that are subject to conditions are not recognised as a liability until the conditions are met, but are disclosed as a commitment where material. Liabilities are recognised on an accruals basis. Provisions are made where there is a present obligation as a result of a past event, a transfer of economic benefit is probable, and the amount can be estimated reliably. |
Where untaken leave is accrued, add this sentence to the end:
Holiday pay accruals are made for untaken leave at the reporting date.
Governance Costs
Template Wording:
| Governance costs, which are included in expenditure on charitable activities but are identified separately in the notes to the accounts, includes costs associated with the independent examination of the financial statements, compliance with constitutional and statutory requirements and any other expenditure incurred on the strategic management of the charity. |
Tangible Fixed Assets (if applicable)
Template Wording:
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Items purchased or donated for the charity's own use are capitalised when the cost of purchased items, or the fair value of donated items, is more than [£1,000] and the item is expected to benefit the charity over more than one accounting period. Depreciation is charged as follows in order to write off the cost of an asset, less its estimated residual value, over the expected useful economic life of that asset.
In view of the maintenance programme in place which aims to keep the building in good condition, the trustees consider that any depreciation of freehold property would be immaterial and accordingly no provision has been made. The carrying amount of the freehold property is reviewed annually for impairment by the trustees.
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The capitalisation threshold, along with depreciation rates need to be updated based on the depreciation policy.
The paragraph refencing freehold property (and the depreciation rate for freehold property) should be removed if this is not applicable.
Setting a capitalisation threshold, for example £1,000, means items below that value are expensed when purchased rather than capitalised and depreciated. This keeps your records simpler and avoids cluttering the balance sheet with immaterial items. The threshold should be applied consistently and recorded in your accounting policies. If you’re unsure what level is appropriate for your organisation, speak to your independent examiner.
Most charities depreciate using simple linear depreciation at a fixed rate per year (recommended)
e.g. a purchase for £1000 depreciating over 4 years, depreciates at £250 per year (regardless of when it was purchased during the financial year).
Investments (if applicable)
Template Wording where applicable:
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Fixed asset investments are held to generate income and / or for their investment potential. Current asset investments are investments that are held specifically for sale or are investments that the charity expects to sell by the next balance sheet date. Investments, other than social investments (see below), are valued as follows: 1) Investment property and listed investments are valued at their market value (fair value). 2) Unlisted investments are measured at cost less impairment where it becomes apparent that the amount that could be realised is less than cost. Social investments are investments where the primary motive is to further the charity's objects, not to generate an investment return. Social investments comprise : 1) Concessionary loans - These are initially recognised as the amount paid and thereafter the carrying value at every balance sheet date is adjusted for repayments, interest charges and provisions for impairment if the amount owed may not be fully recoverable. 2) Investment property that is let rent-free - these are valued at fair value or, where this cannot be reliably ascertained, at cost less impairment. Mixed motive investments are investments that are held both to generate a financial return and to contribute to the furtherance of the charity's objects. Impairment losses and losses arising on the disposal of social investments are included in the Statement of Financial Activities under the heading 'Expenditure on charitable activities'. Gains arising on the disposal of social investments are included in the Statement of Financial Activities under the heading 'Other income'. All other gains and losses on investment assets are included in the Statement of Financial Activities under the heading 'Net gains / (losses) on investments'. |
Stocks (if applicable)
Template Wording where applicable:
| Stocks of goods purchased for re-sale are stated at the lower of cost and net realisable value. |
Where the charity is donated stock, this additional sentence is needed:
Stocks of donated items held for distribution to beneficiaries are measured at fair value; stocks of goods donated for the charity's own use are valued at an estimate of their value to the charity.
Pensions (if applicable)
Template Wording where applicable:
| The charity operates defined contribution pension schemes for its employees. Obligations for contributions to these schemes are recognised as an expense when the liability arises. The assets of these schemes are held separately from those of the charity in independently administered funds. |
If you have a defined contribution pension scheme, use this alternative wording:
The charity contributes to various defined contribution pension schemes and to the [XX] pension scheme, which is a multi-employer defined benefits pension scheme. The charity is unable to identify its share of this scheme's assets and liabilities but the last actuarial valuation on XX indicated a funding [surplus of £XX and the charity, along with other participating employers, are now making contributions at a reduced rate] [deficit of £XX and the charity, along with other participating employers, are now making contributions at an enhanced rate so that the funding shortfall can be eliminated]. As permitted by FRS 102, the [XX] pension scheme is being treated as if it were a defined contribution scheme. Pension contributions payable for the year to the various pension schemes are charged to the SOFA as obligations to make contributions arise. The assets of these schemes are held separately from those of the charity in independently administered funds.]
If you have employees who are part of the Baptist Union Pension scheme, here is some suggested additional text:
The charity is a participating employer in the Baptist Union Pension Scheme which, prior to January 2012, was a multi-employer defined benefit pension scheme. The charity is unable to identify its share of this scheme's assets and liabilities therefore, as permitted by FRS 102, the entire scheme is being treated as if it were a defined contribution scheme. The last actuarial valuation indicated that the obligation to provide defined benefits gives rise to a funding deficit and the charity, along with other participating employers, must make additional contributions to remedy the deficit. The obligation to make deficit reduction contributions in future years has been included as a liability in these financial statements. Further information about this defined benefits scheme, and the charity's obligation to contribute towards its funding deficit, is disclosed elsewhere in the notes to these accounts.
If you have employees who are part of the Church Workers Pension Fund, here is some additional suggested text:
The charity contributes to the Church Workers Pension Fund, which is a multi-employer defined benefits pension scheme as described in Section 28 of FRS 102. The charity is not able to identify its share of the Scheme's assets and liabilities and, therefore, as permitted by FRS 102, the Scheme is accounted for as if it were a defined contribution pension scheme. Contributions to the Scheme are charged to the Statement of Financial Activities as they become payable. Further information about the Scheme is disclosed in the notes to the accounts..
If you have employees who are part of the Church of England Funded Pension Scheme, here is some additional suggested text (remove the last paragraph if not required);
The charity also contributes to the Church of England Funded Pension Scheme, which is a multi-employer defined benefit pension scheme. The charity is unable to identify its share of this scheme's assets and liabilities therefore, as permitted by FRS 102, it is being treated as if it were a defined contribution scheme.
The last actuarial valuation indicated that the obligation to provide defined benefits gives rise to a funding deficit and the charity, along with other participating employers, must make additional contributions to remedy the deficit. The obligation to make deficit reduction contributions in future years has been included as a liability in these financial statements.
Further information about this defined benefits scheme, and the charity's obligation to contribute towards its funding deficit, is disclosed in the notes to the accounts.
[The last actuarial valuation indicated a funding surplus and the charity will make contributions at a reduced rate in future years until the surplus is eliminated. Further information about this defined benefits scheme, and its funding surplus, is disclosed in the notes to the accounts].
Leased Assets (if applicable)
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Leases for assets that transfer to the charity all the risks and rewards of ownership are classified as finance leases. Assets under finance leases are recognised as assets of the charity at the inception of the lease at their fair value or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between a finance expense and a reduction of the lease obligation so as to achieve a constant rate of interest on the liability. Leases which do not transfer substantially all the risks and rewards of ownership to the charity are classified as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term (unless another systematic basis is more representative of use). Income relating to lease incentives are spread on a straight-line basis over the term of the lease; at the balance sheet date the amount of the incentive to be allocated to future accounting periods is carried forward as deferred income. |
In SORP 2026 there are significant changes to lease accounting for charities that are lessees. Most leases will now result in the recognition of a right-of-use asset and a corresponding lease liability, although exemptions are available for qualifying short-term leases and leases of low-value assets.
This may affect charities that rent property or lease equipment. Special consideration may also be needed for peppercorn, rent-free and other significantly below-market arrangements, which may contain a donated element as well as a lease.
For more information, see Stewardship’s blog about lease accounting and the SORP 2026.
Concessionary Loans (if applicable)
| The charity initially recognises and measures concessionary loans at the amount received or receivable. The carrying amount is adjusted in subsequent years to reflect repayments and any accrued interest. |
Taxation
Template Wording:
| The charity has taken advantage of the various reliefs from taxation available to charities and no tax is payable on the charity's income. |
This disclosure needs updating if the charity isn't exempt from VAT and/or Corporation tax.
Financial Instruments
Template Wording:
| The charity's financial assets and financial liabilities all qualify as basic financial instruments, as defined by FRS102. Except for loans, creditors and debtors are measured at their expected settlement value (normally the amount of cash that the charity expects to pay or receive). The charity recognises liabilities for the principal of those loans that remains outstanding at the year end (i.e. the liabilities exclude any interest chargeable on the loans in future years). |
Foreign currency translation
Template Wording:
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These financial statements are presented in sterling, which is the charity's functional currency. 1) Income and expenditure denominated in a foreign currency is translated into sterling at the exchange rate prevailing on the date of the transaction. 2) Monetary assets and liabilities denominated in a foreign currency are re-translated at the exchange rate prevailing at the balance sheet date. 3) Non-monetary assets are measured at historic cost at the rate of exchange prevailing on the date of the transaction and are not subsequently re-translated. All differences arising from the application of the above policy are charged (or credited) to the Statement of Financial Activities. |
Exemption from preparing a cashflow statement
Template Wording:
| The charity has taken advantage of an exemption conferred by the Charities SORP and has not prepared a cash flow statement. |
Judgements and Key Sources of Estimation
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The trustees do not consider that there are any material sources of estimation or uncertainty at the balance sheet date that could result in a material adjustment to the carrying values of assets and liabilities in the next reporting period. In preparing financial statements certain judgements, estimates and assumptions have to be made that affect the amounts recognised in the financial statements. The trustees consider the following to be significant:
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To find answers to other Frequently Asked Questions relating to Year End Accounts check out this help guide article.
For information on completing other sections of the Year End Accounts, please see these further support articles: