Further and Higher Education SORP Consultation
Sudhir Singh · Posted on: June 6th 2025 · read
As many of you will be aware, FRS102 – the underlying accounting standard for most Higher Education Institutions (HEIs) – was updated in September 2024. The resulting amendments are effective for accounting periods beginning on or after 01 January 2026, with early application permitted provided all the amendments are applied together.
The periodic update to FRS102 made in 2024 has triggered a requirement for the Further and Higher Education (FEHE) Statement of Recommended Practice (SORP) to also be updated. The British Universities Finance Directors Group (BUFDG) has led the drafting of the SORP and recently closed its period of public consultation on the FEHE SORP Exposure Draft. Final revisions are now being made and although there is some uncertainty regarding the timetable it is expected that the final updated SORP will be published on 01 August 2025, with the same effective date as the updated FRS102.
Key changes
There are two ‘big ticket’ items that will apply to most HEIs when the updated SORP becomes effective. These are the two significant changes in the revised SORP and have been known about for some time.
1. Lease accounting
The first significant change relates to lease accounting. The current FRS102 allows HEIs to account for operating leases as an expense. The new FRS102 will require HEIs to account for most operating leases on the Balance Sheet. FRS102 has moved to this approach as it continues to align with international accounting standards. As a result, HEIs that lease assets will see an increase in assets and liabilities on the Balance Sheet.
All entities applying FRS102 will be required to follow section 20 (Leases) of FRS102 with some simplifications available. The FEHE SORP Exposure Draft has been accompanied with a series of draft guidance notes which provide examples to assist HEIs and will also provide further detail on sector specific issues such as peppercorn leases.
All entities applying FRS102 will be required to follow section 20 (Leases) of FRS102 with some simplifications available.
2. Five-step revenue recognition model
The second significant change is the introduction of the five-step revenue recognition model, also introduced as part of the updated FRS102. Again, draft revenue guidance notes were issued alongside the SORP Exposure Draft, which has been briefly summarised below.
FRS102 defines a contract to be ‘an agreement between two or more parties that creates enforceable rights and obligations’, and HEIs will need to determine the duration of the contract during this step of the model. Contract modifications – such as the change in scope or price of the contract – will need to be accounted for either as a separate contract or as part of the original contract.
HEIs will need to assess the goods and services promised in a contract with a customer during this step of the model, identifying as a performance obligation each promise to transfer to the customer either:
- A good or service (or a bundle of goods and services) that is distinct; or
- A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
There are further criteria in FRS102 which will help HEIs determine if a good or service is ‘distinct’, and further consideration will need to be given to the arrangement where the good or service is provided by a third party.
Section 23 of FRS 102 defines the transaction price as ‘the amount of consideration to which the entity expects to be entitled in exchange for transferring goods or services promised to the customer, excluding amounts collected on behalf of third parties (e.g., some sale taxes)’.
In determining the transaction price, the HEI may need to consider:
- Variable consideration, such as discounts;
- Time value of money, when the arrangement constitutes a financing transaction;
- Non-cash consideration, such as equipment required to fulfil the contract, which should be measured at fair value;
- Consideration payable to a customer, such as bursaries and scholarships
This last consideration may be of particular significant to HEIs as it will help them determine how to account for bursaries – which in most cases should be recognised as a reduction to the transaction price (i.e. the cost of the student’s course) where the value of the bursary does not exceed the cost of the course.
The transaction price is allocated to each performance obligation identified in the contract on a relative standalone selling price basis unless allocating discounts or variable consideration on an alternative basis. However, an HEI need not apply this step of the model if a contract contains a single performance obligation or all performance obligations in a contract are satisfied at the same point in time.
An HEI shall recognise revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when (or as) the customer obtains control of that good or service, and different accounting treatment will need to be applied if the performance obligations are satisfied over a period of time or at a point in time.
Other changes in the draft SORP
Other than the two major changes the other revisions made to the draft SORP are either relatively insignificant or will not apply to the majority of HEIs. Those familiar with the changes in the draft revised Charities SORP will be surprised at how little has been amended.
However, once the final version of the revised FEHE SORP is published it will be advisable to consider any changes which will be applicable to each HEI. Some will be fairly simple to adopt such as the change to the salary banding disclosure for higher paid staff which are now required to be in £5k rather than £10k bands. Other changes which will be of relevance to some affect the disclosures concerning going concern, and financial instruments and the treatment of investment in associates, onerous contracts, intangible assets, non-exchange transactions, heritage assets, agricultural activities, service concessions. The model primary statements included in the Appendix have also been slightly revised so it is worth considering this revised recommended presentation.
"Some areas of the guidance remain unclear such as fund accounting and how bursaries and scholarships financed by restricted fund are presented. So it will be interesting to see if any significant changes are made between the draft and final SORP."
Next steps
Care should always be taken before acting on draft revised guidance. However, in the case of the two major changes – leasing and income recognition – those are driven by the revised FRS102, so major changes to the SORP in these areas are unlikely. In both these areas HEIs would be well-advised to start considering the possible implications even though for the majority of the sector these will not apply until the accounting period ending 31 July 2027.
However, in these areas research into the adoption of the changes should have been completed well before the start of that accounting period. Since the final SORP will not be published until the latter part of 2025 early preparation over the next few months will be beneficial.
For more information
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