3 Key Takeaways From Our Recent F&HE SORP 2026 Simplified Webinars
Joseph Sale · Posted on: April 10th 2026 · read
The most recent FEHE SORP (2026), based on the revised FRS 102, was published on 03 November 2025.
Being applicable to financial periods beginning on or after 01 January 2026 means that most Higher Education Institutions (HEIs), with 31 July year-ends, won’t need to start applying the new standard until 01 August 2026, ahead of their 31 July 2027 year-ends. However, conscious that other HEIs have December year-ends (meaning they would need to start applying the new standard from 01 January 2026 ahead of their 31 December 2026 year-ends), and that the new SORP would require a not insignificant amount of preparatory work, MHA ran two webinars in early 2026 to highlight the key changes in the SORP, being those concerning revenue recognition and lease accounting.
In this article we will discuss several of the key matters for Higher Education Institutions to consider now.
1. Accounting for and disclosing bursaries, scholarships and student support
Under the third step of the new five-step model of recognising revenue from contracts with customers, the 2026 SORP introduces the concept of ‘consideration payable to a customer’. It provides examples of what such consideration may be – with bursaries, scholarships and student support arguably the most relevant to HEIs – and who the customers are most likely to be: students.
Such consideration is not new, and the 2019 SORP permitted institutions to account for it as either fee discounts or expenditure. 2026 SORP has removed this option and mandates that such consideration be treated as a reduction of the transaction price and, therefore, of revenue. The only exceptions to this new rule are when payments are in exchange for a distinct good or service, or when they are not linked to the revenue contract (for example one-off hardship payments).
Our team’s experience is that most HEIs currently account for bursaries, scholarships and student support as expenditure in their Statements of Comprehensive Income (SoCI). This new approach will not have an impact on an HEI’s result for the year; whilst such expenditure will be removed from the SOCI, corresponding values will be deducted from Tuition fees.
However, the new accounting treatment will give rise to inconsistencies between the SoCI and reserves notes when bursaries, scholarships and student support are awarded from endowment and restricted reserves, as the reserves notes will still need to show the payment of these awards as expenditure. These inconsistencies risk obscuring the value of bursaries, scholarships and student support paid in a given reporting period.
Given the majority of HEIs are public benefit entities, and that institutions significantly benefit from receiving endowment and restricted funds for the purposes of bursaries, scholarships and student support, this may be a risk institutions do not wish to take. As such, HEIs may wish to consider providing supplementary disclosures in Tuition fee notes to show the ‘gross to net’ impact of payments of such awards, either narratively or numerically:
| Gross tuition fees | XXX,XXX |
| Less bursaries, scholarships and student support awarded | XXX,XXX |
| Net tuition fees | XXX,XXX |
"Tuitions fees above constitute gross fees charged of £XX.Xm less £XX.Xm of bursaries, scholarships and student support awarded from endowment and restricted reserves."
2. The impact of changes to lease accounting: income and expenditure volatility, social donations, loan covenants, and reserves policies
In line with the revised FRS 102, the new 2026 SORP removes the difference between operating and finance leases for lessees. The 2026 SORP takes the reader through the key accounting processes under the new approach: identifying a lease and its term and recognising a right-of-use asset and lease liability on the Balance Sheet (both initially at the commencement of the lease and subsequently over the life of the lease).
The impact of the new approach will be significant, and so management teams at HEIs would be well advised to start considering them now.
Under the 2019 SORP, a lease expense equal to the value of lease payments less the impact of any lease incentives was recognised in the SoCI. Under the 2026 SORP, a combination of depreciation of the right-of-use asset and the interest expenses associated with unwinding of the lease liability will be recognised instead. These values will not necessarily be the same, with lease expenses under the 2026 SORP likely to be greater than those under the 2019 SORP at the beginning of a lease and lower towards the end of the lease.
Furthermore, where under the 2019 SORP the annual expense would most commonly be consistent over the length of the lease, such expense will vary annually under the 2026 SORP as a discount rate is applied to the brought forward lease liability.
As such, institutions should look to calculate the revised expenses over the remaining length of existing leases and update budgets and future forecasts accordingly. HEIs may also want to consider adopting a reducing balance method of depreciating the right-of-use asset in order to manage when the majority of total lease expenses will be recognised.
It is not uncommon for HEIs to benefit from leases which are either provided at below market rates. Whereas the 2019 SORP was silent on the treatment of such leases, the 2026 SORP has included specific guidance on how to assess these types of arrangements.
For leases provided below market rate, a non-exchange transaction occurs. When initially measuring the cost of a right-of-use asset and lease liability, HEIs will also need to value the non-exchange transaction. This should be calculated at ‘the value to the institution’ – the price the institution estimates it would have paid in the open market for a service or facility of equivalent utility. This value needs to be included in the initial cost of the right-of-use asset, and thus will further increase the expenditure volatility over the term of the lease.
It is essential that HEIs develop processes which enable them to identify the intentions of lessors when entering new lease contracts such that they can account for any social donations accordingly.
The new way of accounting for leases will not only impact the value of lease expenses recognised in the SoCI (and in some cases the value of income too), but also the value of tangible fixed assets and current and non-current liabilities reported on the Balance Sheet. HEIs which have loans with covenants which are assessed using financial information reported in statutory accounts (e.g. EBITDA and current ratio) should assess forecast compliance with such covenants. If non-compliance is forecast as a result of the change in accounting treatment of leases, institutions should reach out to lenders as soon as possible to negotiate appropriate amendments to covenants.
For HEIs which adopt a reserves policy, the changes in lease accounting are likely to impact the existing calculation of ‘free reserves’. The value of tangible fixed assets is usually removed from total unrestricted reserves when calculating free reserves, and so with the tangible fixed assets likely to increase as a result of the revisions to the SORP, HEIs should consider reassessing the method by which they calculate free reserves going forward. Adequate documentation of any change to policy, and sufficient disclosure in statutory accounts, will be essential.
3. Document and communicate the increasing amount of estimation and judgement applied in accounting for revenue and leases
The new methods of accounting for revenue from contracts with customers and leases include several areas of estimation and judgement:
- The first of the new five-step model of recognising revenue from contracts with customers requires an HEI to identify whether a contract indeed exists. This is based on a set of five criteria, closely linked to UK Company Law, some of which could be open to interpretation. For example, HEIs with historic outstanding student debts may debate whether or not a student ever had the “ability and intention to pay the consideration due to the institution when it is due”.
- In determining the transaction price (part of step three of the model), any contingent income needs to be estimated by the institution and periodically reassessed.
- When allocating the transaction price between performance obligations under step four of the model, HEIs are required to consider the relative stand-alone selling price of each obligation. When such a price is not observable, institutions are permitted to use an estimate.
- The term of a lease includes the non-cancellable period as well as any periods covered by an option to extend, if the lessee is reasonably certain it will do so, and any periods covered by an option terminates, if the lessee is reasonably certain it won’t do so. The ‘reasonable certainty’ may change over time or differ depending on who at HEI is considering the lease.
- Lease liabilities must be recognised at the present value of lease payments. This requires the use of a discount factor which may be implicit in the lease, the obtainable borrowing rate, or the interest rate on deposits.
Decisions makers at HEIs are strongly encouraged to document all significant estimates and judgements associated with the new accounting treatments. Setting out the basis for such estimates and judgements, and communicating them to those charged with governance, will not only document adequate consideration of the new standards but also likely stimulate critical engagement.
MHA hope that these two webinars have provided management teams at Higher Education Institutions with at least a little more confidence in how to apply the changes in the SORP to their institutions and in what steps they need to take now, and that they act as a useful reference when implementing the changes.
If you need advice on any of the themes discussed in this article, our team is here to support you.
Engaging professional advisors early – be them lawyers to review contract terms, surveyors to assess leased properties, or accountants to confirm interpretation of accounting guidance – will certainly help.
