In a continuation of our SORP updates, we now look at Higher Education! The updated FEHE SORP can be found here.
The 2026 FEHE SORP introduces the most extensive changes to financial reporting for further and higher education institutions in many years (since 2019 to be precise!). It reflects the recent review of FRS 102 and becomes mandatory for periods beginning on or after 1st January 2026. The new SORP aims to make financial reporting clearer, more consistent and more transparent across the Higher Education sector, and aligns with changes in recent years to International Financial Reporting Standards (IFRS). As a result, institutions will need to update their accounting policies, rethink how they classify different types of income and be ready for the impact of new rules on leases and revenue recognition.
Strategic Reporting
A major development is the stronger focus on the quality of narrative reporting. Institutions must now produce a Strategic Report that explains, in a clear and balanced way, how the institution is performing, what risks it faces and how it plans for the future. The report is expected to describe the organisation’s objectives, how they are being delivered and how financial sustainability is being protected. Institutions that are also charities will need to demonstrate how they deliver public benefit, reflecting a growing expectation from regulators and funding bodies for improved accountability.
Income Recognition
The new SORP also tightens the rules on how income is recognised. Revenue from activities such as tuition fees, consultancy and commercial operations must now follow the updated five step model in FRS 102, which is similar to that in IFRS 15. This requires institutions to identify exactly what services they have promised to deliver and then recognise income as those services are completed. In contrast, most funding body grants and many research grants do not fall into this category, because they are seen as supporting public benefit rather than providing a commercial service. These must be recognised under the rules for government grants or non-exchange income. Institutions will need to apply careful judgement to research funding, particularly where a contract has commercial characteristics. The SORP also reminds institutions to avoid double counting income where studentships are funded by grants but also appear as tuition fee income.
Lease Accounting
Lease accounting is another area where the changes are significant following the introduction of IFRS 16. Under the revised rules, most leases must now be shown on the balance sheet. This means institutions will recognise a right of use asset and a matching lease liability. The effect will be a larger balance sheet and changes to key financial measures such as gearing and operating results. While short term and low value leases may be excluded, most institutions will see a noticeable impact and will benefit from assessing this early.
The treatment of property has also been clarified. Buildings used for teaching or research must be shown as property, plant and equipment rather than investment property, even if they bring in income. The same applies to student accommodation. This will reduce the use of fair value valuations and support more stable and comparable reporting between institutions.
Development Expenditure
The SORP also updates the treatment of development expenditure, provisions and onerous contracts. The rules on development expenditure will become much stricter and clearer. Institutions may only capitalise development costs once they can demonstrate that the project will deliver future economic benefits and that the costs can be measured reliably. Research-stage spending must always be written off, and capitalisation is only allowed during the genuine development phase. Website costs used for advertising must be expensed, and only functional or content-related development may be capitalised if it meets the criteria. The SORP also states that speculative online course development must be written off, with capitalisation permitted only where a course is being created to meet a specific contract. The overall effect is that institutions will capitalise far fewer projects and will need stronger evidence to justify doing so.
Overall, the 2026 SORP moves the sector decisively toward tighter discipline, clearer accountability and more meaningful financial reporting. Institutions that delay adaptation will find themselves on the back foot, both in explaining their financial position and in meeting rising expectations from funders and regulators. Those that move early will be better placed to demonstrate resilience, protect credibility and strengthen the financial narrative they present to stakeholders.
For more information please contact Stuart Jones from the Arlingclose Higher Education Treasury Team here.
15/12/2025
Related Insights
Treasury Management for Universities