Along with the new FRS 102, the new Charities SORP became applicable for accounting periods commencing on/after 1 January 2026.
In the charity sector, by its very nature, it is a not uncommon feature to have a peppercorn rent arrangement between landlords and their charity tenants so that the property is let to the charity at a very small or no rent. Under paragraph 10.B.75 of the SORP, such ‘arrangements under which the charity pays nil or only a nominal amount of consideration are known as ‘peppercorn’ arrangements.
Paragraph 10.B.76 goes on to state (our own bold italics are inserted here) that ‘while these arrangements may have the legal form of a lease, it is unlikely they will meet the definition of a lease under FRS 102 as the payments due are likely to be very small or there may be no payment due. Any nominal payments that are made are treated as an operating expense. Such arrangements are outside the scope of Section 20 of FRS 102.
Such arrangements may fall within the recognition criteria of another part of the Charities SORP – Module 6, which deals with ‘Donated goods, facilities and services, including volunteers’ meaning that they are considered to be a form of non-exchange transaction.
The trustees will need to consider:
- the benefit that is being received and
- how that should be measured and accounted for.
There is further explanation in paragraph 10B.78 of the SORP and in the examples in Table 9A so that (my bold italics inserted):
- if the arrangement means that an asset is available to the charity to use to carry out its charitable activities, the charity will need to identify the fair value of that asset and account for a donated asset in line with the treatment described in SORP module 6 ‘Donated goods, facilities and services including volunteers’;
- if the arrangement means that a facility or service is now available to the charity, the value to the charity of the facility or service is used and a donation recognised for that amount. Details about the donation of facilities and services can be found in SORP module 6 ‘Donated goods, facilities and services including volunteers’.
For those of you still in the process of ISQM 1 implementation, please see our ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie.
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Publications and AML webinar:
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- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
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