The first international accounting standard for non-profit organisations
· Posted on: March 7th 2025 · read
The international non-profits accounting guidance (INPAG) is being developed by the IFR4NPO initiative as the first globally developed accounting framework for non-profit organisations.
This initiative began in 2019 and, having gained sponsorship, established a governance framework which includes representatives from major accounting standards setters. The IFR4NPO set out to develop a genuinely global dialogue about non-profit accounting and financial reporting.
Once it is launched the body of guidance that is INPAG will be published and available to be adopted by those countries interested in having a dedicated accounting framework for non-profits. The launch is expected in summer 2025 and its launch will preceded that of the new Charities SORP effective for the UK and, subject to the accounting regulations being made, Ireland.
Since the UK and Ireland have their own accounting and reporting framework for non-profits, including charities, the launch of the INPAG will not have any immediate implications for charities registered and/or operating in the UK and Ireland that prepare and file their accounts under UK-Irish Generally Accepted Accounting Practice (GAAP). Even if a charity’s trustees prefer INPAG to SORP, the INPAG will not be a choice because accounts prepared on a ‘true and fair’ basis must be prepared by charities under GAAP and INPAG will not be part of GAAP. The Financial Reporting Council (FRC) oversees the accounting framework for the UK and also Ireland and so is the arbiter of what GAAP is.
The implications of having INPAG are medium to longer-term and include:
- INPAG as a reference source for the FRC when it updates accounting standards and in particular FRS102 for public benefit entity (PBE) specific issues
- The overseas parent of UK charity may be in a jurisdiction that requires INPAG leading to adjustment issues in preparing group accounts (or visa versa)
- Some international donors may look for donor specific reporting in a format which is derived from INPAG or uses INPAG related guidance on donor reporting
- INPAG may gain the status of an International Non-Profit Accounting Standard (INPAS) which would pose a question of convergence with GAAP
- Longer term the FRC might consult on either aligning the Charities SORP framework with INPAG (or INPAS) or adopting it into GAAP in place of having PBE specific elements to FRS102 and discontinuing the PBE SORPs.
To establish whether INPAG would be a better choice, the initial consideration must be how far it differs from GAAP at launch and whether on balance it would be a better solution for the charity sector in the UK and Ireland.
What INPAG and UK-Irish GAAP and the Charities SORP have in common
The current Charities SORP and draft INPAG share some common underpinnings:
- Both FRS102 and the Charities SORP, which provides charity specific application guidance for the financial reporting standard applicable in the UK and Ireland (FRS102), and INPAG are largely based on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs)
- Both FRS102 and INPAG look to full IFRS as a source of guidance in developing their accounting standards
- Both FRS102 and INPAG recognise that income from gifts, grants and donations, whether financial or non-financial (non-exchange transactions), need to be treated differently from income from exchange transactions
- The Charities SORP (refer to module 1) and INPAG both have a specific section on the narrative report- the trustees’ annual report
- The Charities SORP (refer to module 2) and INPAG both recognise the importance of fund accounting in the presentation of financial statements and in the analysis in the notes to the financial statements
- The Charities SORP and INPAG both have specific formats for the performance statement in the accounts - the Statement of Financial Activities (module 4) in the SORP and the Statement of Income and Expenses (INPAG)
- The SORP (module 4) and INPAG facilitate the natural presentation of the charities income and expenditure as an alternative to the functional presentation
- Impairment of assets not used for generating cash-flows is considered with reference to service potential in the SORP (module 12) and INPAG
- The Charities SORP (module 16) and INPAG both accept that expenditure on grants needs to be separately analysed
- The importance of distinguishing agency arrangements is accepted in the SORP (module 19) and INPAG.
Key differences between the draft INPAG and UK-Irish GAAP and the approach taken by the current Charities SORP
Although the draft INPAG and the current SORP have much in common, INPAG is not the SORP internationalised and different ideas and choices have emerged between the two frameworks.
INPAG is not intended to be a universal framework whereas the SORP is applicable to all charities preparing their accounts on an accruals basis but IFR4NPO made an early choice to be selective with INPAG designed for medium-sized non-profit organisations.
Financial statements differ with the current SORP having three- Statement of Financial Activities, Balance Sheet and, for larger charities, Statement of Cashflows whereas INPAG has four. In part this is because INPAG is not just for charities but caters for most forms of non-profit organisations. The INPAG will have: Statement of Income and Expenses, Statement of Financial Position, Statement of Changes in Net assets and Statement of Cashflows.
INPAG has missing topics because in order to progress the development phase the IFR4NPO project chose to omit some topics to a later iteration of the INPAG guidance. Topics omitted include heritage assets, social investment and endowments.
Restricted funds are a feature of the SORP and INPAG but the SORP takes a purposes based approach to definition (see modules 2 and 5) whereas INPAG looks at obligations (Exposure Draft 2). This means that the existence of performance related grant obligations will always cause that income to be considered restricted funds in INPAG.
How might a future SORP converge with INPAG or diverge further from 2025?
The current SORP is due to be updated for changes to UK-Ireland Generally Accepted Accounting Practice (GAAP) with the new FRS102 standard that is effective for reporting periods beginning on or after 1 January 2026. This is in response to the updating of both the IFRS for SMEs and developments in full IFRS, in particular revenue recognition and lease accounting. In this regard INPAG and GAAP look to be making different choices
- Revenue recognition – both GAAP and INPAG are adopting the five stage revenue recognition model for exchange transactions (income from contractual sale of goods and services) but INPAG is applying the five stage model to all grants with performance obligations (Exposure Draft 2) whereas this is not the case for GAAP.
- Leasing- GAAP is updated for lessee accounting based on full IFRS with the distinction between operating and finance lease for lessees removed and all such leases being on balance sheet whereas INPAG is staying with IFRS for SMEs which retains this distinction for lessees.
- Fund accounting as noted will differ with the SORP retaining a purpose based definition whereas INPAG is incorporating both purposes and obligations in its approach which means that under INPAG more funds will count as restricted funds.
- Presentation- INPAG will have a natural presentation on the Statement of Income and Expenses as the default whereas the SORP is likely to retain the activities basis as a default and also as a requirement for larger charities in the Statement of Financial Activities.
- Social investment- an area of innovation in the UK with a new approach likely for the SORP but as yet not an area of guidance in INPAG and so definitions and accounting may come to differ.
- Narrative reporting- the SORP currently has performance reporting as an option which is encouraged for larger charities (module 1) whereas INPAG is looking to require it (Exposure Draft 1).
Looking to the future- choosing between continuing with SORP or adopting INPAG will be a fork in the road
The FRC oversees GAAP and so ultimately would decide about whether to continue with the Public Benefit Entity (PBE) SORPs, including the Charities SORP, or to adopt INPAG but it would consult on this if it decided to entertain this option.
For the charity sector, in deciding whether to push for the UK adoption of INPAG or lobby to continue with the SORP, it will come down to which offers the better longer-term solution for the charity sector in meeting its reporting needs. Adoption in Ireland would be more complex given that the European Union has not adopted EU wide the IFRS for SMEs but it leaves GAAP to each jurisdiction, subject to adherence to the Accounting Directive (which in turn applies only to for-profit financial reporting).
As it is arguably all is not well with the FRC’s current approach to non-profits. The Charities SORP-making body, in responding to the periodic review, has twice requested more understanding, flexibility and choice be allowed in GAAP to better meet the reporting needs of the sector.
The evidence the sector needs to make an informed choice will soon be with us. On the one hand a new FRS102 and Charities SORP and on the other the published INPAG will both be in place by 2026. Reflecting on this choice will be a topic for the future.
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