Lease Accounting Changes for Charities

New reporting standards are coming for charities which will require reporting on leases. Our Real Estate team reviews the impact of these new standards and what charities should do next.

Accounting and audit aspects of the Charities (Amendment) Act 2024 have not yet been commenced as they require the implementation of the long-awaited Accounting and Reporting Regulations. These Regulations are drafted but have not yet been commenced. When commenced, the Regulations will mandate the use of Charity SORP by all charities above a certain threshold regardless of whether that charity is a company or not. Many charities in Ireland already adopt SORP, and all charities will have to be prepared for its adoption as they will need comparative information from previous years in a SORP compliant manner.

Revisions to Financial Reporting Standard 102 (FRS 102) will take effect for charities in Ireland from 1 January 2026, marking a notable shift in accounting requirements particularly regarding lease accounting.

For charities, early awareness will be essential to ensure a smooth transition. We outline the key updates and what they could mean for your organisation’s financial reporting.

What is lease accounting?

Under the revised FRS 102 and accompanying draft SORP, charities will be required to recognise and disclose income and liabilities related to leases in their annual accounts. This change aligns charity reporting more closely with broader financial reporting standards.

What is a lease under the new regulations?

The draft SORP defines a lease as a contractual agreement between a charity and another party for the use of an asset - typically property, plant, or equipment - for an agreed term in exchange for payments. Charities should review their arrangements to identify leases and understand their characteristics.

Are there any exceptions?

Lease accounting can be complex, and a starting point is to assess whether any exemptions apply.

Two key exemptions are:

• Short-term leases: meaning leases of less than 12 months that do not include a purchase option.
• Low-value leases: such as those for items like computers or office furniture, provided the assets are not dependent on others and can be used independently. Assets such as vehicles or buildings do not qualify as low value.

What are the rules?

If a lease does not fall under an exemption, charities must prepare to report it. The reporting obligations differ depending on whether the charity is a lessee or a lessor.

• For lessees, all leases must be disclosed. Required information includes a general description, financial commitments, restrictions imposed by the lease, and gains or losses from leaseback arrangements.
• For lessors, charities must distinguish between a finance lease, which transfers risks and rewards of ownership, and an operating lease, which does not. Each classification brings different disclosure requirements.
  

Conclusion

Charities already using the current SORP should begin examining how the revised framework will impact their reporting requirements. With the new SORP issuing later this month and the revised FRS 102 taking effect on 1 January, the timeframe is tight. Early planning will be critical to minimise the impact of these changes. Charities should begin assessing their existing leases and refining their accounting practices.

For more information and expert advice, please contact a member of our Real Estate team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.