Statement of Recommended Practice (SORP)

SORP Accounting Standards Industry Guidelines Financial Reporting Financial Reporting Council Franked SORPs Sector-Specific Practices
A non-mandatory statement dealing with accounting topics relevant to a particular industry or sector in the UK, issued by recognized bodies within those industries and approved by the Financial Reporting Council (FRC).
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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:

  1. Charities SORP: Provides guidance for accounting and reporting by charities, ensuring transparency and clarity in financial disclosures.
  2. Investment Trusts SORP: Offers recommendations for financial reporting by investment trusts to improve consistency and comparability.
  3. 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.

  • Financial Reporting Council (FRC): An independent regulator responsible for promoting high-quality corporate governance and financial reporting in the UK.

  • Accounting Standards: Rules and norms governing accounting practices, ensuring consistency and transparency in financial reporting.

  • Industry Guidelines: Recommendations specific to a particular industry, helping organizations comply with best practices.

Online Resources:

Suggested Books for Further Study:

  1. “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
  2. “UK Accounting Standards: A Practical Guide” by Steve Collings
  3. “The Essentials of UK GAAP” by Cathryn Cousins
  4. “Financial Reporting and Analysis” by Charles H. Gibson
### What does SORP stand for? - [x] Statement of Recommended Practice - [ ] Standard Organization Regulative Process - [ ] Statement of Regulatory Principles - [ ] Summary of Recommended Policies > **Explanation:** SORP stands for Statement of Recommended Practice, which provides non-mandatory guidelines for accounting practices relevant to specific industries or sectors. ### Who must approve a SORP to become a 'franked' SORP? - [ ] HM Revenue and Customs - [x] Financial Reporting Council (FRC) - [ ] The European Union - [ ] UK Accounting Standards Board > **Explanation:** A SORP must be approved by the Financial Reporting Council (FRC) to be considered a 'franked' SORP. This process ensures its adherence to high standards of financial reporting. ### Are SORPs legally binding? - [ ] Yes, they are mandatory under UK law. - [x] No, they are not legally binding but highly recommended. - [ ] Only during financial audits. - [ ] Only for publicly traded companies. > **Explanation:** SORPs are not legally binding. However, they are authoritative and following them is strongly encouraged to achieve consistency and reliability in financial reporting. ### Which of the following industries has its own SORP? - [x] Charities - [ ] Automobile manufacturing - [ ] Retail clothing - [ ] Technology startups > **Explanation:** The charity sector has its own SORP, which provides specific guidelines for financial reporting to ensure transparency and accountability. ### What is the primary benefit of following a SORP? - [ ] Reducing taxes - [x] Enhancing consistency and quality of financial reporting - [ ] Increasing production speed - [ ] Decreasing operational costs > **Explanation:** The primary benefit of following a SORP is to enhance consistency and quality of financial reporting within an industry, promoting clarity and comparability. ### Which body typically develops SORPs? - [ ] Financial Analysts - [x] Recognized industry bodies - [ ] Government regulators - [ ] Corporate executives > **Explanation:** Recognized industry bodies typically develop SORPs, as they are best equipped to understand the specific needs and challenges of their respective sectors. ### Which practice indicates that a SORP has been formally endorsed? - [ ] Certifying - [ ] Grading - [ ] Validating - [x] Franking > **Explanation:** The practice of 'franking' indicates that a SORP has been formally endorsed by the Financial Reporting Council (FRC), ensuring it adheres to high standards of quality. ### What is the main role of the Financial Reporting Council (FRC) concerning SORPs? - [ ] Developing new financial products - [ ] Setting tax rates - [x] Approving and endorsing SORPs - [ ] Auditing public companies > **Explanation:** The main role of the Financial Reporting Council (FRC) concerning SORPs is to approve and endorse them, ensuring they meet quality standards for financial reporting. ### Which term refers to SORPs that have received formal FRC approval? - [ ] Approved SORPs - [ ] Standard SORPs - [x] Franked SORPs - [ ] Certified SORPs > **Explanation:** SORPs that have received formal FRC approval are referred to as 'franked SORPs,' indicating they meet endorsed quality standards. ### For which of the following is a SORP most useful? - [ ] Personal tax returns - [ ] Casual transactions - [x] Industry-specific financial reporting - [ ] General accounting practices > **Explanation:** A SORP is most useful for industry-specific financial reporting, providing tailored guidelines that improve consistency and transparency within a specific sector.

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!

Tuesday, August 6, 2024
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