What is a Statement of Recommended Practice (SORP)?
Statements of Recommended Practice (SORPs) are guidelines issued for specific industries or sectors that provide recommendations on accounting principles and practices. These guidelines are not mandatory but are highly regarded and recognized as best practices within their respective fields. SORPs are developed and issued by authoritative industry bodies and must receive formal approval from the Financial Reporting Council (FRC) in the UK through a process known as “franking.”
Key Characteristics of SORPs:
- Industry-Specific: Tailored to meet the unique needs and circumstances of specific industries or sectors.
- Non-Mandatory but Authoritative: While not legally binding, adherence to SORPs is strongly encouraged to ensure consistency and quality in financial reporting.
- Approved by FRC: SORPs must be endorsed by the Financial Reporting Council, lending them additional credibility.
Examples of SORPs:
- Charities SORP: Provides guidance for accounting and reporting by charities, ensuring transparency and clarity in financial disclosures.
- Investment Trusts SORP: Offers recommendations for financial reporting by investment trusts to improve consistency and comparability.
- Pension Funds SORP: Suggests approaches for accounting and reporting by pension funds, facilitating a clear presentation of financial health.
Frequently Asked Questions (FAQs):
What is the process for approving a SORP?
The process, known as ‘franking,’ involves formal submission to and approval by the Financial Reporting Council (FRC). This ensures that the SORP aligns with broader financial reporting standards and practices.
Are organizations required to follow SORP recommendations?
Organizations are not legally required to follow SORP recommendations, but adherence is generally expected within the industry for consistency and reliability in financial reporting.
How do SORPs benefit an industry?
SORPs provide standardized guidelines that enhance comparability, transparency, and accountability in financial reporting, which benefits stakeholders including investors, regulators, and the public.
Who develops SORPs?
SORPs are developed by recognized expert bodies within the pertinent industry or sector. These bodies understand the specific needs and challenges faced by the industry and design guidelines to address them.
What is the difference between a ‘franked’ and ‘unfranked’ SORP?
A ‘franked’ SORP has been officially approved by the Financial Reporting Council (FRC), ensuring it meets high standards of quality and relevance. An ‘unfranked’ SORP has not yet received this endorsement.
Related Terms:
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Financial Reporting Council (FRC): An independent regulator responsible for promoting high-quality corporate governance and financial reporting in the UK.
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Accounting Standards: Rules and norms governing accounting practices, ensuring consistency and transparency in financial reporting.
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Industry Guidelines: Recommendations specific to a particular industry, helping organizations comply with best practices.
Online Resources:
Suggested Books for Further Study:
- “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
- “UK Accounting Standards: A Practical Guide” by Steve Collings
- “The Essentials of UK GAAP” by Cathryn Cousins
- “Financial Reporting and Analysis” by Charles H. Gibson
Accounting Basics: “Statement of Recommended Practice (SORP)” Fundamentals Quiz
Thank you for exploring the role and importance of the Statement of Recommended Practice (SORP) in industry-specific financial reporting with our detailed guide and quiz. Keep enhancing your accounting knowledge!