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Accountability and not-for-profit organisations: implications of an international financial
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Publisher citation: CRAWFORD, L., MORGAN, G.G. and CORDERY, C.J. 2017. Accountability and
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Available from: https://doi.org/10.1111/faam.12146
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Accountability and not-for-profit
organisations: implications for
developing international financial
reporting standards
Louise Crawforda, Gareth G Morganb & Carolyn J Corderyc
a
Robert Gordon University, Scotland, l.crawford2@rgu.ac.uk
b
Sheffield Hallam University, England, Gareth.Morgan@shu.ac.uk
c
Victoria University of Wellington, NZ, Carolyn.Cordery@vuw.ac.nz
Running Head:
International Financial Reporting for NPOs
Corresponding author:
Professor Louise Crawford
Aberdeen Business School
Robert Gordon University
Aberdeen AB10 7QE
Acknowledgements
This study on which this paper is based was funded by the CCAB (Consultative
Committee of Accounting Bodies: the authors wish to thank them and members of the
Steering Group for their support. However, all opinions expressed in this paper are
those of the authors alone. We would also like to thank Dr Oonagh Breen (University
College Dublin) who provided legal analysis for this study; Faisal Sheikh and Dr
Liafisu Yekini (both from Sheffield Hallam University) for their support with the
literature and narrative analysis, Suyanto Suyanto (University of Dundee) for
managing, administrating and co-ordinating the contact lists and distribution of the
survey, and finally, Ruth Kelly (University of Dundee), for web-management of the
online survey.
1
Accountability and not-for-profit organisations:
implications for developing international financial
reporting standards
ABSTRACT
This paper provides empirical evidence which informs contemporary debates on
developing international financial reporting standards for not-for-profit organisations
(NPOs) (CCAB, 2013a,b; IFRS Foundation, 2015). Drawing on a global survey with
respondents showing experience of NPO reporting in 179 countries, we explore:
practice and beliefs about NPO financial reporting internationally; perceptions of
accountability between NPOs and stakeholders; and implications for developing
international financial reporting standards. Interpreting our research in the context of
accountability, we find considerable support for developing international financial
reporting standards for NPOs, recognising broad stewardship accountability to all
stakeholders as important, but prioritising accountability upwards to external funders
and regulators.
KEYWORDS:
Not-for-profit organisations (NPO); accountability; international financial reporting;
stewardship.
INTRODUCTION
The not-for-profit sector represents a broad mix of organisations having accountability
relationships to diverse stakeholder groups for a range of social activities and objectives
(Unerman & O’Dwyer, 2006a; Dhanani & Connolly, 2012; Connolly et al., 2013a).
However, although the academic literature has proposed accountability frameworks for
the sector, the ability of these frameworks to explain existing financial reporting
practice across the globe and inform contemporary financial reporting developments,
remains un-explored. The current paper addresses this gap by investigating financial
reporting practice and perceptions of not-for-profit organisations (NPOs) across the
globe. With particular focus on organisations with a charitable purpose, we analyse
views from 605 survey respondents who are involved in NPO financial reporting,
operating across 179 countries in five world regions and worldwide. Specifically we
explore: (i) practice and beliefs about contemporary NPO financial reporting,
internationally; (ii) perceptions of accountability relationships between NPOs and their
stakeholders; and (iii) the implications for developing internationally converged
financial reporting to facilitate NPO accountability. Our research is developed and
interpreted through accountability theory. Our findings highlight considerable support
for developing internationally converged financial reporting standards for NPOs, with
survey respondents recognising broad stewardship accountability to all stakeholders as
important, but prioritising accountability upwards to external funders and regulators for
financial and fiduciary concerns.
2
A major part of executing accountability to key stakeholders is providing ‘high quality
accounting and reporting’ information (Connolly et al., 2013b, p58). Indeed, the
Charity Finance Group (CFG) Symposium (2012) identified a need for a ‘shared
understanding’ for NPOs’ financial reporting so that donors, beneficiaries and global
networks can use this information appropriately. Arguably, financial reporting will
constitute one means by which NPOs can execute pluralistic accountability to their
multiple stakeholders, together with non-financial and narrative reporting (Ryan et al.,
2014). However, in a majority of countries across the world, there are no NPO-specific
standards, financial reporting lacks a sector-specific conceptual framework, and
regulation of the standards that exist, is often poor (Burger, 2012; Cordery, 2013).
The NPO sector exhibits unique characteristics compared to the for-profit and public
sectors, operating ‘in an environment of primarily non-exchange transactions with
voluntary funders’ (Ryan et al., 2014) (Table 1, Panel A). This creates challenges for
an NPO to demonstrate accountability to its diverse stakeholders for achieving its social
mission (Table 1, Panel B) (Lennard, 2007; O’Dwyer & Unerman, 2007; Laughlin,
2008; Dhanani & Connolly, 2012). Compared to the for-profit sector, there are no
owners to whom accountability for financial wealth creation can be prioritised (Table
1, Panel B). Indeed, the singular focus on prioritising reporting to investors and lenders
to facilitate economic decision-making1, as captured in the International Accounting
Standards Board’s (IASB's) conceptual framework (Lennard, 2007; IASB, 2010; Ryan
et al 2014) (Table 1, Panel C), is not appropriate to the NPO sector. Neither is the
International Public Sector Accounting Standards Board’s (IPSASB) conceptual
framework, which identifies primary users of (public sector) financial reports as service
recipients (public and their political representatives) and resource providers (taxpayer)2
‘for accountability [stewardship] purposes and as input for decision making’ (IPSASB,
2014, p4) (Table 1, Panel C). Contemporary debates recognise that there is no
international equivalent of the IASB or IPSASB for the NPO sector (CCAB, 2013a,b;
CIPFA, 2015; IFRS Foundation, 2015; MANGO, 2015).3 Indeed, the research
presented in this paper is timely given that, at the time of writing, the IFRS Foundation
are consulting on whether IASB should extend its remit stating:
There are calls for international standards for the not-for-profit sector to be
developed … The [IFRS Foundation] Trustees continue to strongly support
the need for transparent financial reporting requirements for not-for-profit
bodies. Given the demand for standards to be created for that sector and the
lack of an international standard-setter to do that, the Trustees would
welcome views on whether the scope of the organisation’s mandate should
be expanded to encompass not-for-profit bodies (IFRS Foundation, 2015,
para 22).
Our research responds to calls (Leo 2000, p2) to undertake research ‘to provide answers
to the accounting problems’ facing NPOs, and to convince ‘doubters’ that NPO
accounting standards are necessary. Ryan et al. (2014, p397) also call for research,
noting that there has been little attempt ‘to link financial reporting diversity of practice
[across the globe] to the enhancement of sector accountability’.
We answer these calls in several ways. Firstly, in contrast to many jurisdiction-specific
studies, we investigate contemporary NPO financial reporting practice internationally,
together with beliefs about executing NPO accountability responsibilities. Secondly,
much attention in the academic literature is aimed at understanding for-profit practice
(Lennard, 2007; Zeff, 2007) and the politics of standard-setting (Baskerville & Pont
3
Newby, 2002; Crawford, Ferguson et al., 2014), with comparatively little attention
devoted to how international financial reporting might be perceived and developed for
the NPO sector. By contrast, this research investigates the extent to which developing
NPO-specific International Financial Reporting (NPO-IFR) would be supported by the
sector. Finally, we explore qualitative characteristics and types of NPO-specific
transactions perceived to be important if NPO-IFR standards or guidelines were to be
developed.
The remainder of this paper proceeds as follows. We discuss theoretical dimensions of
NPO accountability followed by an appraisal of the sector and contemporary financial
reporting practices. After outlining the research method, we interpret our findings.
Finally, we present conclusions and suggest areas for policy development.
Insert Table 1 about here
NPO ACCOUNTABILITY
In this section we explain the role of financial reporting in executing NPO
accountability, and discuss conceptual dimensions of NPO accountability.
Accountability and financial reporting
With their increasing economic and social significance, the practical and
political importance of robust and comprehensive demonstrations of
accountability, including financial accountability, is being increasingly
recognised (Ryan et al., 2014, p383).
From a theoretical viewpoint, the need for NPO accountability is supported by a number
of authors (Lennard, 2007; O’Dwyer & Unerman, 2007; Laughlin, 2008). Mulgan
(2001, p92) notes, ‘[a]ll organisations may … be expected to report accurately on their
current financial situation’. Torres & Pina (2003) and Dhanani & Connolly (2012)
argue that financial reporting is part of a package of functional and social
accountability, important to a wide variety of stakeholders for assessing an NPO’s
sustainability and stability in pursuit of mission achievement. Ryan et al. (2014) focus
on how financial accountability, which contributes to NPO accountability, should be
carried through to conceptually underpinned, sector-specific financial reporting
standards.
However, the primary focus of NPO accountability, whether for stewardship or
decision-usefulness, has not been agreed conceptually (O’Dwyer & Unerman, 2007;
Dhanani & Connolly, 2012). Zeff (2013) notes that the meaning of stewardship in
accounting standard-setting has evolved from reporting management’s husbanding of
an entity’s resources to efficiency, to encompassing analysis of management’s
effectiveness at providing a return4 on resources employed. In making this distinction,
Zeff acknowledges that the terms stewardship and accountability have been used
interchangeably over time, as is apparent in the IPSASB conceptual framework
(IPSASB, 2014). In this current paper, we distinguish the term ‘accountability’ from its
‘stewardship’ purpose.
Determining accountability responsibilities
Several accountability frameworks have been proposed in what has been an explosion
of literature in this area over recent years. These frameworks are based on: (i)
understanding ‘who’ is demanding accountability information, whether from all
4
stakeholders or selected stakeholders; and (ii) determining the boundary of
accountability information to be disclosed, whether for discharging functional and/or
social accountability.
In considering ‘who’ is demanding accountability information, NPO stakeholders must
be identified and their accountability needs understood (Leo, 2000). The NPO sector is
characterised by having accountability relationships with a diverse range of
stakeholders, including: beneficiaries, funders, government and regulators (Connolly et
al., 2013a; Unerman & O’Dwyer, 2006a). Ebrahim (2003) distils diverse groups into:
funders; regulators and clients, while Keating & Frumkin (2003) provide finer
granularity into: directors/trustees; NPO staff; clients who use the NPO services; donors
who provide charitable support; and the community that benefits indirectly from the
NPO services. In their exploration of UK charities’ governance, Hyndman &
McDonnell (2009) distinguish between stakeholders that are external to the
organisation, being donors, regulators and beneficiaries, as opposed to internal
stakeholders, being trustees/directors, paid staff and volunteers (Figure 1, y-axis).
There are two overlapping approaches to determining the boundaries of NPO
stakeholder accountability, from narrow to broad notions of accountability (Figure 1,
x-axis). The first approach is generally narrower and emerges from legitimacy theory,
where ‘accounting may be seen as a legitimising institution’ (Jonsson, 1998, p233) and
accountability mechanisms are developed as strategic tools to garner support for NPO
activities from key stakeholders (Suchman, 1995; Dhanani & Connolly, 2012). At its
narrowest, this approach is pragmatically-focused on identity accountability, meaning
that accountability responsibilities are determined by internal actors running the NPO
‘to be accountable or answerable to themselves’ (Unerman & O’Dwyer, 2006b, p356)
(Figure 1, Box A). Interestingly, while the social objectives of NPOs arguably means
that reporting should extend beyond internally determined identity accountability,
literature suggests that some NPO managers, actually or theoretically, deem themselves
accountable only to themselves for achieving a set mission (Unerman & O’Dwyer,
2006b; Coule, 2015). Stakeholders may be ranked by importance and accountability
prioritised to mission-critical stakeholders,5 to facilitate NPO sustainability and so
influence the achievement of the organisation’s objectives, (Unerman & O’Dwyer,
2006b). Thus, NPO management might be encouraged to ‘expend more effort on and
account to/for the more salient [mission-critical] stakeholders who have the power to
influence organisational outcomes’, for example regulators and funders (Dhanani &
Connolly, 2012, p1143) (Figure 1, Box B).
The second approach is grounded in stakeholder theory where an NPO takes a broad,
ethical and ‘inclusive perspective of accountability that recognises the need to account
to and for multiple constituencies’ according to their needs and expectations (Dhanani
& Connolly, 2012, p1142). This reflects Unerman & O’Dwyer’s (2006b) appreciation
of broad relational accountability where:
all those affected by an organisation’s [or person’s] actions can demand
an account from managers of that organisation [or person] regarding how
and why the organisation has acted in the manner it has (p351).
Hyndman & McDonnell (2009) extend this notion of relational accountability, linking
it inextricably with good [charity] governance, stating that:
… charity governance can be viewed as: relating to the distribution of
rights and responsibilities among and within the various stakeholder
5
groups involved, including the way in which they are accountable to one
another; and also relating to the performance of the organization, in terms
of setting objectives or goals and the means of attaining them (p27).
Broad notions of accountability capture all stakeholders, idealistically, without ranking
of importance (Figure 1, Box A-D).
Approaches to executing accountability will depend on the extent to which managers
of NPOs act as either agents or stewards in respect of the accountee. The accountability
relationship between directors (agents) of for-profit entities with shareholders
(principal) assumes, under agency theory, that agents are motivated by self-interest. By
comparison, stewardship ‘assumes a long term relationship … based on trust, collective
goals and … relational reciprocity’ between the accountee and the accountor (Kluvers
& Tippett, 2011, p. 277). This stewardship definition arguably better explains the
accountability relationship between those who manage and govern NPOs with NPO
stakeholders (Unerman & O’Dwyer, 2006a; Kluvers & Tippett, 2011; Connolly et al.,
2013a) (Table 1, Panel B).
Dhanani & Connolly (2012), drawing on their appreciation of O’Dwyer & Unerman’s
(2007) conceptualisation of NPO accountability, present two inter-related types of NPO
activity for which an account should be given: functional (financial and fiduciary) and
social (strategic and procedural). Functional accountability is ‘concerned principally
with accounting for, and the use of, resources’ whereas, social accountability
‘capture[s] the social impact of an organisation’ (p1147). This reflects Torres & Pina’s
(2003) understanding of NPO accountability as incorporating an account of ‘effort’ and
‘accomplishments’, being the quantity of resources committed in pursuit of social goals,
and the social outcomes that result, respectively (p280). Thus, the adequate disclosure
by NPOs of financial and social information ‘contributes to explaining to
[stakeholders], the need for and the use of the resources donated and the social benefits
of the activity carried out in order to obtain [further] social and financial support’
(Torres & Pina, 2003, p283).
Other frameworks have been proposed in an attempt to explain the nature and scope of
NPO accountability, based on understanding the purpose for which accountability
information is being disclosed (Unerman & O’Dwyer, 2006b; O’Dwyer & Unerman,
2007 and Dhanani & Connolly, 2012). For example ‘upward accountability’ to funders
and regulators for functional goals (Figure 1, left side), and ‘downward accountability’
to beneficiaries, employees and volunteers for social, environmental, fundraising and
value-relevant goals (Figure 1, right side). Clearly, determining accountability ‘to
whom’ includes considering notions of ‘for what’. This integrated understanding of
accountability is illustrated in Stewart’s (1984) ‘ladder of accountability’. The bottom
of Stewart’s ladder is ‘accountability by standards’, for probity and legality, capturing
narrow accountability for financial and fiduciary goals. At the top of the ladder is
‘accountability by judgement’; if the accountor has climbed the ladder to the top, then
broad relational accountability for functional and social goals will have been executed
to all stakeholders, holistically. NPO accountability, as discussed above, is represented
in Figure 1, and underpins our research development and interpretation of empirical
findings.
Insert Figure 1 about here
6
THE NPO SECTOR AND FINANCIAL REPORTING PRACTICE
In this section, we discuss the defining characteristics of the NPO sector in terms of
mission, stakeholders and transactions and review the debate surrounding developing
global accounting practice for the sector.
Characterising the NPO sector
The term ‘not-for-profit sector’ used in this paper can also be referred to as the ‘third
sector’, ‘community and voluntary sector’, and ‘civil society’ (Salamon & Anheier,
1992),6 and, as NPOs exclude government entities, they may also be called NGOs (NonGovernmental Organisations).7 The NPO sector is diverse and has a major economic
presence in many countries throughout the world (Teegen et al., 2004; Kreander et al.,
2009; United Nations, 2013). In addition, this sector has grown rapidly in recent years,
due to governmental trends to privatise and outsource activities that were previously
the domain of the public sector (Lehman, 2007). This rapid growth and reliance on
voluntary contributions from: individuals; members; national governments; and
international funding agencies, necessitates NPO accountability to stakeholders to
secure funding for delivering important services.
NPOs comprise a heterogeneous mix8 of ‘mission-oriented organisations’ (Ryan et al.,
2014, p384) which shape the nature of NPO-stakeholder relationships and
accountability responsibilities (Unerman & O’Dwyer, 2006a; Dhanani & Connolly,
2012; Connolly et al., 2013a) (see Table 1, Panel A). Specifically, the NPO sector is
distinguished from the other sectors by the source and nature of its transactions.
Resources are donated to NPOs as income, assets or as labour, through voluntary and
non-exchange transactions, arguably reflecting the contributor’s values and utilitarian
beliefs, where the contributor expects no economic return. NPOs use capital assets for
service provision, rather than to generate cash flows (Not-for-Profit Sector Advisory
Committee (NPOSAC), 2009; Dacombe, 2011; Davies & Maddocks, 2012). These
characteristics contrast NPOs from exchange based transactions in the for-profit sector
and involuntary (coercive taxation) transactions in the public sector (Ryan et al., 2014).
Additionally, individual who choose to work or volunteer in the sector, may hold ‘a set
of values’ aligned to NPO goals, rather than narrower self-interest values traditionally
associated with for-profit work (Kluvers & Tippett, 2011).
Debating development of global financial reporting practice for NPOs
With the rapid growth of NPOs to assist community development in developed and
lesser-developed countries (Tully, 2012), some feel that international standards will be
a cost-effective way to ensure NPO accountability, and that it would result in savings
in terms of audit and regulatory effort (CFG, 2012). Quality reporting should also
increase donors’ trust and confidence in NPOs, when they can see that their donations
have been directed appropriately. However, despite the call for NPO-IFR, to date only
a few countries enjoy NPO sector-specific standards, for example: Canada, England
and Wales, Scotland, Belgium, New Zealand, Switzerland and USA. There is no
general reportnig framework for NPOs in, for example, India, Ireland or Japan. NPOs
operating in Australia and South Africa are required/allowed to follow International
Financial Reporting Standards (IFRS) pronounced by the IASB, and New Zealand’s
new standards9 have been adapted from IPSASB standards - International Public Sector
Accounting Standards (IPSAS) (Crawford, Morgan et al., 2014).
7
Dhanani & Connolly (2012, p1141) state that annual reporting by NPOs is essential for
stakeholders to monitor NPO activity and is ‘increasingly … recognised as one of the
most widely used tools with which [NPOs] can account to their stakeholders’. However,
contemporary NPO financial reporting practice is typically jurisdiction-specific; indeed
often NPOs prepare reports of different types and styles depending on the audience for
that information (Torres & Pina, 2003; Crawford, Morgan, et al., 2014). Further,
financial reporting differs not only according to the audience for that information, but
often lacks homogeneity within a particular country, due to a lack of regulation (CFG,
2012) and differing organisational forms (Morgan, 2013). Financial reporting is also
inconsistent between countries, which the CFG argue is due to a lack of agreed
international standards for NPOs. Indeed, Torres & Pina (2003) illustrate variability in
accounting for NPO-specific issues across four countries (Canada, USA, UK and Spain)
and argue that such heterogeneous practice impacts negatively on the reliability and
comparability of NPO reporting. Ryan et al. (2014) argue for a NPO conceptual
framework to develop:
appropriate accounting standards from which financial reports are
derived to enable NPOs to demonstrate financial accountability in the
context of a broader accountability that includes mission achievement
(p385).
In comparison, the for-profit and public sectors can draw on a sector-specific
international conceptual framework and associated international accounting standards
pronounced by IASB and IPSASB, respectively (IASB, 2010; IPSASB, 2014). These
frameworks define the respective objectives of financial reporting and elaborate the
characteristics of information that are likely to be most useful to sector-specific users
(see Table 1, Panel C). The qualitative characteristics of relevant information that
faithfully represents underlying transactions and events of the reporting entity, are
defined in the context of the sector, being understandability, timeliness, comparability,
and verifiability.10 These characteristics are attributes that support the provision of
financial and non-financial information for accountability purposes (IASB, 2010;
IPSASB, 2014) and reinforce perceptions of the transparency11 of financial reporting.
However, the academic literature cautions against adopting for-profit or public sector
practices to report NPO performance, where ‘… techniques borrowed from the business
sector, … filtered through the public sector, … applied in an ad hoc manner to situations
in the voluntary sector’, do not take adequate cognisance of the NPO-specific issues
and impact negatively on NPO accountability (Myers & Sacks 2003, p287). One further
important consideration is that the due processes and transparent consultations leading
to pronouncement of standards issued by the IASB and the IPSASB have not actively
sought the views of the NPO sector. Such failure to ‘fully consult with all affected
constituent groups … highlights possible risks with moving to [other] standard-setting
environment[s]’ (Baskerville & Pont Newby, 2002, p. 2).
An NPO sector-specific conceptual framework may facilitate the development of
‘consistent standards and … prescribe the nature, function and limits of financial
accounting and reporting’ for the sector (Ryan et al., 2014, p384). Arguably,
standardised, conceptually underpinned accounting standards, implemented globally,
may contribute to accountability by underpinning disclosures that is: ‘complete and
relevant’ (Ryan et al, 2014, p385); ‘reliable and comparable’ between and within
jurisdictions (Torres & Pina, 2003, p283); subject to regulation, oversight and audit
(CFG, 2012); and transparent, contributing to explaining to stakeholders how the efforts
of an NPO translate into outcomes towards mission achievement (Torres & Pina, 2003;
8
Dhanani & Connolly, 2012). Indeed, the Chartered Institute of Public Finance
Accountants (CIPFA) hosted a meeting of standard setters ‘from jurisdictions including
Australia, Canada, Japan, Ireland, the Netherlands, Norway, Sierra Leone, South
Africa, Turkey, UK, USA, and Zimbabwe ... [and] representatives of the IASB and the
IPSASB’ (MANGO, 2015; see also CIPFFA, 2015; Ugwumadu, 2015) to discuss the
potential development of NPO-IFR standards or guidelines for the sector.
In order to examine the potential and opportunity for NPO-specific international
financial reporting to contribute to accountability, we investigate perceptions of those
who are involved in NPO financial reporting across the globe. Specifically, we interpret
perceptions in relation to: contemporary NPO financial reporting practice and beliefs,
internationally; accountability relationships between NPOs and their stakeholders; and
implications for developing internationally converged financial reporting for the sector.
The scope of our research includes private organisations that are established for public
benefit or which would be seen as charitable organisations in jurisdictions where the
term ‘charity’ is used (Figure 2, Box 3.2.2).12 This scope is narrower than the field of
third sector organisations (Figure 2, Box 3) which generally include certain profitdistributing organisations such as co-operatives trading for social purposes (Box 3.1).
In order to extend our approach to countries where there is no formal recognition of
charities, we define our focus as encompassing organisations in any country which
would probably meet the English definition of charity and organisations in any country
which are entitled to charitable-type tax reliefs (whether or not the actual term ‘charity’
is used).13 We present our method in the next section.
Insert Figure 2 about here
METHOD
Following an analysis of literature, we discussed relevant issues with a steering group
of professional body and civil society representatives concerned with NPO financial
reporting practice. This informed the development of a web-based survey14 to be
distributed to the widest worldwide audience of stakeholders with interests in NPO
reporting.
The survey comprised a mixture of closed (multiple option) and open-questions
(inviting narrative responses)15 (Table 2). Closed-question statements explored
perceptions of accountability and international financial reporting developments using
a 1 to 5 Likert scale (where 5 = ‘strongly agree’); most of the closed-questions were
answered by almost all 605 respondents (from 585 to 601 answers) and open-questions
attracted comments from at least two thirds of respondents.
Insert Table 2 about here
A request to take part in the survey was distributed by email to two international contact
lists of potential ‘Individuals’ and ‘Gatekeepers’ who were specifically involved in
NPO financial reporting. The lists were generated from the research team’s professional
networks and bodies represented on the steering group.16 The Gatekeepers were
typically professional bodies or support groups for NGO finance managers who agreed
to forward the survey to their members or contacts, thus substantially increasing the
level of responses.
Email recipients were encouraged to publicise the survey to their networks and others
who might be interested and we know that many did so. The overall approach was thus
based on ‘snowball sampling’ to identify the widest possible range of respondents. We
9
do not make any claim, therefore, that the respondents are representative of entire world
populations engaged in NPO accounting, but all respondents had some definite interest
in this field.
Respondents included NPO staff members, NPO board members/trustees, national and
international standard setters, NPO regulators17, practitioners involved in preparation,
audit or independent examination of NPO accounts, professional accountancy bodies,
academics with an interest in NPO financial reporting and users of NPO financial
reports. The survey was piloted amongst the team before going live to respondents for
one month over November/December 2013.
Respondents from 605 usable responses reported direct experience of NPO financial
reporting across 179 countries, which were grouped for analysis into five world regions
and one world-wide category. Respondents indicated the numbers of NPOs with which
they engaged, split by four income sizes ranging from NPOs with less than £30,000
income to more than £3m (or equivalent in other currencies)18 (Table 3).
Insert Table 3 about here
This method limited survey responses to English speaking participants operating in
countries with developed internet facilities. Using snowball method, it was not possible
to ascertain response rates.
DISCUSSION OF FINDINGS
Practice and beliefs about contemporary NPO financial reporting,
internationally
We asked respondents closed-questions about their experience of NPO financial
reporting practice and an open-question about perceived strengths and weaknesses of
contemporary practice (Table 2, Panel A).
Analysis of closed-questions
In order to benchmark current NPO financial reporting practice with which survey
respondents were experienced, we asked them to identify their involvement in NPO
financial reporting by: type of accounting (Table 4, Panel A); financial reporting
frameworks used (Panel B); and perceived adequacy of these frameworks to cover
NPO-specific transactions (Panel C). This latter question is important as, if the NPO
reporting framework is inadequate, then it is likely that NPO accountability will not be
discharged adequately (see arguments raised by Ryan et al., 2014; Torres & Pina, 2003).
The coherence of the resulting national accounting framework depends to a large extent
on the degree to which there is joined-up thinking between the regulatory bodies and,
where international reporting has been considered, the jurisdiction’s overarching
approach to adoption, convergence or alignment with IFRS and or IPSAS (see, for
example, Breen, 2013; Phillips, 2012).
Insert Table 4 here
Table 4 shows that survey respondents were most frequently involved with financial
reports prepared on an accruals basis (Panel A: 68% of responses). However a
significant minority of respondents report experience of cash accounting (24%) by
NPOs and fewer respondents experience forms of mixed cash-accrual accounting.
Table 4 (Panel B) shows different financial reporting frameworks were chosen 1,525
times by the 605 survey respondents, indicating that each respondent observes multiple
and divergent financial reporting requirements. Financial reporting frameworks
10
governing NPO accounting are most frequently based on national GAAP (experienced
by 51% of respondents), national company law (42%) and national sector-specific law
(39%). Reporting frameworks determined by regulators (29%), NPO-specific standards
(26%) and funder requirements (23%) are also experienced to a notable extent.
However, fewer respondents utilise international financial reporting frameworks for the
for-profit (IFRS: 20%; IFRS for SME: 11%) and public (IPSAS: 3%) sectors. In
addition, survey respondents perceived a fairly low level of recognition of NPOspecific transactions within current reporting frameworks (Panel C), indicating that
related NPO financial reports may be incomplete, impacting on the faithful
representation and reliability of disclosures (Torres & Pina, 2003; IASB, 2010;
IPSASB, 2014). From the list of NPO transactions given in the survey, only 40% of
respondents felt that NPO-specific asset valuations were adequately covered. Even on
the issue of non-exchange transactions (perhaps the most obvious NPO-specific
requirement) only 62% felt their existing standards were adequate.
Disclosing potentially incomplete information will contribute to producing reports that
do not reflect characteristics of relevance, comparability, understandability and
reliability. As argued in the literature, such diversity in practice across the globe and
within jurisdictions, resulting from implementing non-sector-specific frameworks will
negatively impact on discharging accountability (Ryan et al., 2014; Torres & Pina,
2003).
Analysis of open-questions
Of 605 survey responses, 465 (77%) elaborated on the strengths and weaknesses of the
financial reporting frameworks with which they were familiar, with over 70% response
rate from each respondent group.
Several respondents made positive comments on particular frameworks such as the
Charities SORP in the UK, Swiss GAAP regime applicable to NPOs, or the multi-tier
framework being introduced in New Zealand. However, although a staff member
involved in Zambian and European NPOs noted that ‘… standard guidelines are
sometimes available and … the donor is clear on their requirements, this respondent
raised concern that these were not ‘… regulated and enforced efficiently’.
Some respondents expressed frustration at the diversity of practice, particularly in
relation to sector-specific transactions, creating comparability and consistency
problems:
Having worked in a number of jurisdictions, the key issue for me is the lack
of consistency across national borders, often in key areas of the financial
reports (e.g. income recognition, treatment of different types of charitable
funds). (NPO board member, UK)
Other concerns raised related to the relevance and complexity of contemporary
reporting practice impacting on the NPO’s ability to transparently discharge
accountability for charitable objectives, for example:
Accounting frameworks are established for for-profit organizations and
when applied to non-profit organizations do not reflect the real activities,
budget accountability and other important issues of NPOs. (NPO board
member, Argentina)
and:
11
…..frameworks, which are aimed at increasing transparency for users,
actually only provide transparency for accountants trained and
specialising in the sector. Otherwise they are completely opaque. (NPO
staff member, South Africa)
However, in some countries, respondents stated that ‘no particular [NPO] standard
exists’ (Regulator, Afghanistan). They commented that NPOs were consequently
exposed to the burden of multiple funder reporting demands, creating capacity
concerns, particularly for smaller NPOs. Indeed, narrative response evidence indicates
that a lack of accepted NPO accounting practice contributes to a culture where:
‘regulatory bodies … prescribe as they want …’ and prioritise ‘…reporting for donor
and regulatory bod[ies] which brings a burden on the system’ (NPO employee, Kenya).
For some respondents, the perception that using sector-neutral IFRS-based accounting
facilitated comparability across jurisdictions and sectors, indicates support for
standardisation to contribute, in part, to accountability; in this respect, the strongest
support came from standard setters, for example:
Benefits of adopting transaction-neutral/sector-neutral accounting
standards based on IFRS for general purpose financial reporting include:
assists comparability across entities, enables transfer of accounting skills
across private and public sectors, adds rigour to the standard-setter's
deliberations. (Standard setter, Australia)
However, the importance of demonstrating financial accountability ‘in the context of a
broader accountability that includes mission achievement’ (Ryan el al, 2014, p385), is
recognised by others. For example, an NPO staff member working across several
developing countries, expressed that IFRS are ‘not fit to express social values’, and
suggested that IPSAS-based standards may be more helpful in this respect.
Whatever the regime, the vast majority of respondents raised concerns regarding
existing requirements, mostly relating to: the relevance, faithful representation,
reliability, comparability and understandability of current financial reporting practice
in the sector; capacity to implement complex jurisdictional or funder-imposed financial
requirements; and the usefulness of resulting reports to NPO stakeholders. These
problems appeared to relate to the fact that contemporary financial reporting practice is
determined by a plethora of diverse frameworks, implemented across the globe (Table
4), together with pressure to meet funder requirements.
Debatably, the resulting financial information disclosed does not provide an adequate
account to NPO stakeholders of ‘how resources donated have contribute[d] to
explaining … the need for and the use of the resources donated’, potentially attenuating
the ability of the NPO to obtain further social and financial support (Torres & Pina,
2003, p283). Thus, perceptions of contemporary financial reporting practice indicate
inadequacy at disclosing sector-specific, relevant and understandable information
required for executing accountability to stakeholders.
Perceptions of accountability relationships between NPOs and their stakeholders
This section explores perceptions of accountability and qualitative characteristics
relating to NPO financial reporting (Table 2, Panel B).
Analysis of closed-questions
Table 5 shows that the majority of survey respondents strongly agree that NPO financial
reports should be available to anyone (overall mean score of 4.22 [SD 1.054]), and are
12
a key means by which NPOs demonstrate accountability (4.41, [SD 0.839]). In terms
of the focus of accountability, respondents confirmed that NPO financial reports should
demonstrate stewardship of resources (4.51, [SD 0.745]), and to a lesser extent, they
should be useful for decision making (4.29, [SD 0.859]). Therefore, perceptions of NPO
accountability appear closer to the objective of public sector reporting, compared to the
for-profit sector (Table 1). This indicates perceptions of broad accountability to all
stakeholders [‘anyone’] for stewardship of existing resources to protect and advance
NPO values, over narrower financial accountability for economic decision making.
Interestingly, Kruskal-Wallis19 testing indicates that the perception of at least one of the
respondee groups was significantly different from other groups in relation to
availability of NPO financial reports. Further statistical testing distinguishes the views
of the trustees/board members (coded ‘T’ in the tables) from other respondent groups,
showing they are less inclined to support availability of published NPO financial reports
to anyone, implying that trustees favour a narrower concept of financial accountability
compared to other groups.20 In terms of characteristics, a respondent majority agreed
that NPO financial reports should reflect the overarching quality of transparency (4.52,
[SD 0.762], with 94% of respondents in agreement), a high degree of reliability (4.50,
[SD 0.749], 94%), and be clearly understandable to diverse users of NPO accounts
(4.32, [SD 0.811], 90%). There was slightly less agreement for the characteristic of
intra-county comparability (mean 4.03, [SD 0.998], 74%), and even less for crosscountry comparability (3.586, [SD 1.074], 56%).
Kruskal-Wallis results show no statistically significant differences between respondent
types in respect of these ‘characteristics’ statements. These results imply that the
perceived focus on stewardship accountability will be best served if financial reporting
information disclosed is transparent, reliable and understandable, and to a lesser degree,
comparable. These qualitative characteristics for the NPO sector are similar to
accountability characteristics identified in the for-profit and public sectors (Table 1,
Panel C). However, the preferred focus on stewardship over decision-usefulness,
suggests that NPO accountability is more closely related to the objectives of public
sector financial reporting, compared to the for-profit sector.
Insert Table 5 about here
Analysis of open-questions
In considering respondents’ views on enabling NPO accountability with the possible
development of sector-specific international practice, it was important to ask who they
saw as the main users of NPO financial reporting. Accordingly, we asked an openquestion: ‘When thinking about the stakeholder groups and users of NPO financial
reports, to whom do you see the NPO as being accountable and why?’ With
elaboration: ‘Stakeholders and users include (for example): funders; beneficiaries;
employees; board members and trustees; local community; government; regulators, the
wider public.’ The sense of accountability to particular groups of stakeholders was
clearly felt passionately by those who responded to this survey. In all, 492 comments
were received on this question (81%, ranging from 70% from users to 85% from
auditors, with comments totalling over 9,500 words).
More than 100 responses reflected a perception of holistic, broad accountability to ‘all
the above’, for example:
13
(1) Beneficiaries, (2) funders, (3) others working in the same area (e.g.
government, other NPOs, etc.), (4) employees - in that order. (Accountant,
Vietnam and nearby countries)
Beneficiaries as the money is raised in their name, donors because they
have to be satisfied the funds are used for the purpose intended, board
members as they are ultimately accountable for the financial affairs of the
NGO. The wider public for general transparency. (User of NPO financial
statements worldwide)
A number of respondents stressed quite firmly the issue of NPO accountability to
society as a whole and ‘the public’:
Truly everyone. If the goal is community benefit, then the full community
should be able understand how resources are being used towards those
ends. (Accountant, USA)
Of the remaining responses, many perceived a hierarchy of ‘to whom’ accountabilities,
prioritising mission-critical funders at the top of the hierarchy, for example:
While NPO executives are accountable to the governing body, the NPO
itself is accountable primarily to its funding partners for the stewardship
of contributions received. The NPO is also accountable to the wider
community, which down to the level of an individual, may have contributed
to the work of the NPO through contributions to one of its funding
partners. (NPO staff member working in Africa, Switzerland and Israel)
Indeed, the majority21 of respondents identified upward financial accountability to
external funders, for example:
Primarily to those who give them money! – whether that be organisations
or the public – i.e. individuals. (Accountant, UK)
Funders, including both public and private donors – to make sure that
funds are being utilised as expected. Board members and other key
decision makers within the organization – to facilitate their oversight and
decision making. (Accountant, Norway)
Several comments reflected a sense of upward financial accountability to governments,
regulators or tax authorities, for stewardship of financial resources:
[The financial statements] are drafted for charity or regulatory bodies,
and government donors. Government, grant giving bodies and corporate
donors generally receive tailored accounts. Joe public is not given much
in the way of accountability – so why give money to an NPO which has so
little respect for its main source of funding? (User of NPO accounts
worldwide)
Many respondents identified accountability to external funders as critical to achieving
the mission of the NPO to external beneficiaries. Respondents illustrated this
relationship between upward functional accountability and downward social
accountability to external stakeholders, stating that:
The NPO is most accountable to the beneficiaries first because they are
the sole reason for NPO existence and Funders second for their financial
support. (General practitioner, Kenya)
14
Beneficiaries because the mission of NPO is based to the beneficiaries.
The Funders because they need to know if their money has been used as
stated in the funding contract. (NPO employee, Cambodia)
Others clearly prioritised downward accountability to external beneficiaries, giving
reasons:
Beneficiaries primarily (since they are the purpose for which the NPO
exists). (NPO funder, UK)
They need to be accountable for all [stakeholders] but most of all to the
beneficiaries. (NPO employee working worldwide).
Finally, a number of respondents articulated perceptions of identity accountability to
internal stakeholders arguing that accountability to the board or membership was
central and that accountability is a narrow responsibility that is a private matter of the
NPO members:
[The question] above apparently makes some very distinct assumptions
about NPO's as ‘public service’ entities and allows no room for those
membership organizations whose financial activity is completely internal
and no one else's business! … There are cases of NPOs in which external
stakeholders (like accountancy!) has absolute no right to interfere or claim
sovereignty!!! (Academic/researcher, USA).22
Only a minority of responses mentioned accountability to internal employees, although
one response specifically ruled this group out because ‘the employees/board members
and trustees are the NPO, so not [accountable to] them’
In terms of ‘to whom’ an NPO is accountable, our results show the majority view held
conceives accountability as upward accountability to external funders and regulators
followed by downward accountability to external beneficiaries. A minority of responses
suggest notions of identity accountability to internal stakeholders and fewer determine
downward accountability to internal employees and volunteers as important.
We did not specifically ask respondents about who should determine accountability
needs. As such, our interpretation of identity or relational concepts of accountability is
limited. However, few respondents identified only trustees as the main accountee, and
many respondees identified a broad range of stakeholders as accountees. This implies
that our population of respondents gravitate towards a broader relational concept of
accountability, albeit with a majority identification of meeting the needs of missioncritical stakeholders to retain functional support to achieve social goals.
Implications for developing International Financial Reporting for the NPO
sector
We asked respondents to share their perceptions on whether the development of
internationally converged financial reporting practice would be useful (Table 2, Panel
C).
Analysis of closed-questions
The survey evidence shows (Table 6) that a substantial majority of respondents agreed
that an international standard would be useful (overall mean score of 3.88, [SD 1.194],
representing 72% of respondents in agreement), and that the NPO sector should follow
converged international standards (3.66, [SD 1.172], 64%). In addition, survey
respondents thought funders would value NPO accounts prepared in accordance with
15
an international standard (3.84, [SD 1.106], 69%).23 Kruskal Wallis and Mann Whitney
testing reveal that NPO staff and professional preparers are more supportive of
converged international financial reporting for the sector, compared to the least
supportive trustee and professional auditor groups. There was also majority support for
addressing the treatment of sector-specific transactions (Table 4) in any such developed
standard.
Insert Table 6 here
Analysis of open-questions
The narrative responses confirmed majority support for the introduction of converged
international financial reporting ‘for better accounting and reporting and transparency’
(NPO employee, Afghanistan) and to ‘help make comparisons between organisations’
(NPO employee, Canada); albeit with a minority seeing ‘little value in developing an
international standard for NPOs’ (Regulator, Canada).
Consistent with NPOSAC (2009), respondents raised concern about smaller NPOs
being able to bear the costs of financial reporting, with most respondents suggesting
tiers or exemptions for NPOs below a certain level:
I consider that compliance with international requirements will have only
added value for those organisations that have a significant size, and can
be compared across the world. Also compliance will be somehow costly,
and for small organisations that could deviate some funds from their main
purposes. (NPO staff member working worldwide)
The cost of compliance was highlighted with one trustee stating ‘We must avoid
additional layers of complexity’ and concern about diverting funds away from social
goals:
To develop an international standard for NPO accounting, the
requirements should not be so costly as to prevent small organizations
from delivering services, programs, etc. For larger organizations, the
requirements should also be streamlined as donors are more apt to pay for
program costs not accounting overhead/indirect costs. (NPO employee,
USA and Afghanistan)
Capacity issues were raised:
For smaller charities it might be difficult to afford and recruit accountants
and auditors with international accounting standard understanding. (NPO
staff member working in Africa, Americas and Oceania)
However, some 30% of respondents did not want exemptions, on grounds of
consistency:
All NPOs should use international standard regardless of size because
once the standards are in place, it will not be difficult to report when they
grow in size. (NPO employee, Nigeria)
The evident support for converged international financial reporting may reflect a desire
to mitigate against the diversity of contemporary reporting practice and perceived
related accountability concerns, as discussed above.
The interesting significant difference in level of support between employees and
preparers (higher support) with trustee and auditors (lower support) requires further
16
research. Indeed, Morgan and Fletcher (2013) found that trustees are important in
determining financial reporting quality in NPOs. It may be that this group has different
perceptions of how accountability responsibilities are determined, from broad notions
of relational accountability to narrower defined identity accountability.
DISCUSSION AND CONCLUSION
This present research uses accountability theory to interpret findings from a global
survey which explores perceptions about NPO financial reporting and potential
developments internationally. The survey generated 605 responses from 179 countries.
Whilst the respondents were self-selecting, the responses provide a rich source of
empirical evidence to explore perceptions of accountability through NPO financial
reporting. Perceptions held by those involved within an NPO, such as employees and
trustees, to those involved externally to the NPO, such as professional accountants and
auditors, funders and beneficiaries, have been analysed.
Our research has drawn on the academic critiques, that for-profit oriented frameworks
and financial reporting standards are inappropriate for NPOs (Laughlin, 2008; Ryan et
al., 2014). We present findings confirming that contemporary financial reporting
practice across the globe presents several challenges to NPO accountability. First,
contemporary practice, although primarily rooted on accrual accounting, with a
significant minority of financial reports being produced on a cash-basis, emerges from
the implementation of diverse financial reporting frameworks originally applicable to
different sectors. Second, the application of these frameworks is perceived as
inadequate for NPO-specific transactions, reducing the relevance of NPO disclosures
to stakeholders. Finally, where there is a lack of agreed practice, NPOs are exposed to
diverse reporting demands from multiple funders.
Our respondents demonstrated a ready ability to list diverse NPO stakeholders as
important accountees, indicating an appreciation of broad, holistic accountability to all
NPO stakeholders. However, respondents clearly ranked external stakeholders (Figure
1, Box B and C) above internal stakeholders (Box A and D), and priorited functional
accountability to regulators and funders (Box B). This emphasis on upwardaccountability to mission-critical stakeholders seems logical: retaining continued
financial support will enable NPOs to fulfil their social goals to beneficiaries.
Laughlin (2008) and Ryan et al., (2014) advocate the development of a stewardshipbased conceptual framework for the NPO sector.24 Our findings support this view,
where stewardship and decision-usefulness would represent primary and secondary
principles, respectively, underpinned by reporting characteristics of transparency,
reliability and understandability, with comparability being less important. We
summarise these findings in Table 7
Insert Table 7 about here
Reflecting contemporary debates (CIPFA, 2015; IFRS Foundation, 2015; MANGO,
2015), our respondents indicate strong support for developing international NPOspecific standards, which would arguably contribute to accountability (Lennard, 2007;
Laughlin, 2008; Dhanani & Connolly, 2012; Ryan et al., 2014).
For any such development, it may be tempting to prioritise the views of trustees/board
members over other stakeholders, given their instrumentality in driving NPO reporting
quality (Morgan & Fletcher, 2013; Coule, 2015). However, the trustee group in our
research showed significant differences in their thinking compared to other groups.
Caution should therefore be exercised to ensure that, where trustees’ views on
17
determining NPO accountability (identity-based determination of accountability
responsibilities) diverge from other stakeholders demands (relational-based
accountability determination), broad NPO accountability is not unduly threatened.
Also, where the funder is identified as the primary accountee (upward accountability),
our results indicate that conflicts could arise (as Jonsson, 1998 notes) between resource
dependency from funders and staying true to achieving organisational social goals.
In conclusion, regulators, professional bodies, standard setters and civil society
currently face a unique opportunity to influence NPO financial reporting across the
globe, either by (i) developing international best practice guidance, or (ii) developing
NPO-IFR standards. Whichever development, consideration of the experiences of those
involved in NPO financial reporting, as identified in this study, will be important to
facilitate NPOs meeting and demonstrating their accountability responsibilities.
18
ENDNOTES
We note that the IASB is proposing to place more emphasis on stewardship in its ED ‘Conceptual
Framework for Financial Reporting’ (IASB, 2015), which at the time of writing this paper is out for
consultation.
1
2
The IPSASB conceptual framework elaborate to state that citizens are primary users of GPFRs as they
‘… receive services from, and provide resources to, the government and other public sector entities’
(IPSASB, 2014, p4).
To be clear, in the context of this research, it is not the author’s view that NPO-IFR is required to
facilitate NPO accountability, internationally. We are investigating whether there is perceived need
for, and support from those involved in NPO financial reporting, for NPO-IFR as currently being
debated by those who may be in a position to advance or retard this development (CFG, 2012; CCAB,
2013 a and b; IFRS Foundation, 2015; CIPFA, 2015; MANGO, 2015).
3
4
A ‘return’ may be financial or social, depending on the goals of the reporting organisation.
Mission-critical stakeholders are defined as: ‘those stakeholders who are in the best position to progress
or retard an [NPOs] achievement of its mission …, [for example] donors, journalists,
governments/regulators’ (Unerman & O’Dwyer, 2006b, p355).
5
This sector is often referred to ‘the place between the state and the private sector’, though organisations
may be hybrids (Billis, 2010). Authors such as Anheier (2014) illustrate that civil society includes large
international donor organisations to local grassroots NPOs, provides a network of organisations through
which funds and services flow between the private and state sectors.
6
7
However, it is worth noting that some perceive NGOs as being large NPOs with funding from other
countries, as opposed to smaller community-based organisations, so the term ‘NGO’ can suggest a certain
type of organisation in certain jurisdictions (for example, Unerman & O’Dwyer, 2006a).
8
NPOs can be constituted within different organisational forms, which may have specific financial
reporting requirements. For example, in the UK: charitable trusts, charitable associations and not-forprofit companies limited by guarantee, community interest companies, co-operatives, community benefit
societies, and (most recently) charitable incorporated organisations (Morgan, 2013; Salamon & Anheier,
1992) and be subject to specific regulatory oversight mechanisms (Breen et al., 2009; CFG, 2012).
9
In New Zealand, these new standards are applicable from 1 July 2014 (Deloitte, 2015; XRB, 2015). It
should be noted that a detailed consideration of the suitability of IASB or IPSASB standards for the
not-for-profit sector globally was outwith the scope of this current study.
10
The qualitative characteristics of relevance, faithful representation, understandability, timeliness,
comparability, and verifiability are subject to materiality and cost/benefit considerations (IASB, 2010;
IPSASB, 2014). IPSASB ranks these characteristics equally, whereas the IASB defines relevance and
faithful representation as fundamental qualities enhanced by the characteristics of understandability,
timeliness, comparability, and verifiability (IASB, 2010; IPSASB, 2014). Faithful representation
elaborates reliability of information to be determined as information that is complete, neutral and free
from bias.
11
IPSASB determines transparency as being enhanced if the information disclosed is consistent with
the concepts of its conceptual framework, stating that it is an ‘expression of the overarching qualities
that financial reporting is to achieve’ in support of producing accountability information (IPSASB,
2014, BC3.6).
It should be noted however, that “traditional sector boundaries are increasingly breaking down”
(Dees & Anderson, 2003, p16) with a degree of overlap and fluidity between sectors, for example,
some charitable purpose entities may derive some revenues from profit-oriented trading divisions, e.g.
charity shops.
12
13
The English definition of charity (Charities Act 2011 [England and Wales], ss1-5) focuses on two
principles, being an organisation which has exclusively charitable purposes and is established for public
benefit – a charity is not a specific legal structure (Morgan, 2013, p. 23). However, the term ‘charity’
has a different meaning in different jurisdictions, and in many countries it has no formal meaning at
all (Breen et al., 2009).
19
14
Using a web-based questionnaire survey as the research instrument for this study is arguably the most
effective means of collecting information sought (Smith, 2003) from many different countries about
beliefs and practices in the not-for-profit sector, internationally. The survey was drafted in English and
uploaded onto Bristol Online Survey software.
15
The full list of survey questions is as reported in (reference omitted for blind review).
16
The research team comprised the key authors and contributors to this project. It was also supported
by a project steering group and other experts were consulted in the design and delivery of the project.
(Reference omitted for blind review).
17
We have combined funders and regulators as external stakeholders (Hyndman & McDonnell, 2009)
interested in financial and fiduciary accountability, in the context of a broader accountability towards
mission achievement (Dhanani & Connolly, 2012; Ryan et al, 2014) (Figure 1, Box B). This aligns
with Unerman & O’Dwyer (2006b) appreciation of upward-accountability to mission-critical
stakeholders.
18
Table 3, Panel C shows that three quarters of the NPOs represented by our survey respondents had
income of less than £3m. This is consistent with the profile of the NPO/charity sector generally, which
is populated mainly by small organisations (Cordery, 2013; Morgan & Fletcher, 2013). It may be that,
in our sample, the perceptions of those involved in financial reporting of smaller NPOs are significantly
different from those involved with big NPOs, and further statistical analysis would be required to test
this. However, it is worth noting that, statistical analysis suggests that the views of those involved with
NPOs operating in Africa and Asia, regardless of size, have a more positive attitude to the prospect of
regulation than those operating elsewhere in the world.
19
In some cases we distinguish the answers from the various respondent groups with Kruskal-Wallis
and Mann-Whitney tests used to explore the significance of any differences. For tables 5 and 6, a pvalue of less than 0.05 is indicated by *, showing that all mean values are statistically significant, and
Kruskal-Wallis (KW) test of less than 0.05 indicate that the perception of at least one of the respondent
groups is significantly different from other respondent groups. We also manipulated the data using a
Bonferroni correction to ensure that Type-1 errors were not more than 0.05. However, we considered
this statistical test extremely conservative and not without criticism. This data is available on request
from the corresponding author.
20
It may be that trustees envisage accountability being discharged in diverse ways to different
stakeholders, which would reflect a broad notion of accountability; further research, possibly through
semi-structured interviews, could investigate this possibility.
21
Of the 493 narrative responses received to this question, analysis shows: 88% suggest accountability
to external regulators and/or funders; 64% to external beneficiaries; 63% to internal trustees/directors;
49% to internal employees/volunteers; and 30% to the public/community.
22
Whilst this comment raises interesting issues, it should be noted that this respondent seems to be using
a definition of NPOs which goes beyond the scope of this study. The introduction to the survey made
clear that the research is concerned with reporting by not-for-profit organisations established for public
benefit.
23
We note here that respondents may have had varying perceptions of what was meant by an
‘international standard’. We discuss this in the concluding comments to our paper.
24
A focus on decision-usefulness as an objective of financial reporting is not unusual (if the information
is not useful, then why should it be provided?) (Lennard, 2007). However, Lennard notes that much
decision-useful information may exist outside of the financial statements, with Laughlin (2008) arguing
that a decision-usefulness focus is more likely to see specific users requesting specialised reports to meet
their own purposes, rather than rely on the GPFR for which standard setters (such as IPSASB and IASB)
construct conceptual frameworks and write standards.
20
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24
Figure 1: Dimensions of NPO accountability: nature and scope
External
stakeholders
Relational
Beneficiaries
& Funders
B
Upward
Accountability
C
Power to influence
Service user
Power over accountability
Service provider
Downward
Accountability
A
D
Trustees /
Board
Employees/
Accountable for Social Goals
Accountable for Functional Goals
Regulators
Volunteers
Identity
Narrow
Broad
Internal
stakeholders
Note: This figure illustrates dimensions of NPO accountability to stakeholder groups.
The x-axis represents a continuum from a narrow concept of accountability for functional
goals to broader notions of accountability for social goals; the y-axis categorises
stakeholders as those internal or external to the NPO.
The matrix identifies a basis for determining the boundary of accountability. For example,
accountability may be determined based on classifying and ranking NPO stakeholders and
their needs, according to concepts of identity and relational accountability (vertical axis).
Equally, accountability may be determined according to the nature of the accounting
information, being upward for narrow functional goals and downward for broader social
goals (horizontal axis).
The Boxes A to D identify the primary stakeholder ‘to whom’ an account is owed (shown
in each box in the white text on a black background).
o Box A suggests accountability owed to Trustees/Board is a form of narrow,
upward, identity accountability to this internal audience. The nature and
scope of accountability will be determined by this stakeholder group to meet
their own accountability interests;
o Box B suggests accountability to regulators/funders constitutes a narrow form
of upward accountability to this external audience for functional goals.
Identifying this audience reflects concepts of relational accountability,
narrowly defined, to meet the needs of mission-critical stakeholders who
have the power to influence NPO outcomes;
o Box C reflects accountability owed to beneficiaries which reflects broad,
downward, relational notions of accountability to this external audience for
wider social goals.
o Box D suggests that accountability owed to employees/volunteers is a form
of downward accountability to this internal audience for wider social goals;
If the boundary of accountability so determined captures all stakeholder groups, then it
can be assumed that the NPO is discharging holistic accountability to all its stakeholders.
25
Figure 2: Scope of this study - NPOs compared to other sectors (Adapted from Morgan, 2013)
ALL
ORGANISATIONS
1.First Sector
COMMERCIAL BUSINESSES
Non-statutory and established primarily to
generate private profit for owners/shareholders
2. Second Sector:
PUBLIC SECTOR BODIES
Statutory organisations but not-for-profit
3. Third Sector Organisations:
ALL OTHER ORGANISATIONS
Non-statutory and not established primarily to
general private profit
3.1 COMMERCIAL ORGANISATIONS IN THE THIRD SECTOR
3.2 NOT-FOR-PROFIT ORGANISATIONS (NPOs)
(E.g. Co-operativ es, credit unions, and other social enterprises where members or
inv estors receiv e a share of prof its)
Also known as Non-Gov ernmental Organisations (NGOs)
Non-profit-distributing organisations which are not part of government
3.2.1 NPOs WITH NON-CHARITABLE PURPOSES
(E.g. Priv ate clubs and societies, trade associations, organisations with
political or other non-charitable aims, trade unions, etc)
3.2.2 CHARITABLE NPOs
NPOs established for charitable purposes where where that that term has a specific
meaning either in relation to protection of charitable assets or in terms of tax reliefs
concession)
3.2.2.1 UNINCORPORATED CHARITIES
Organisations without corporate status but governed under a structure
which creates a reporting entity for accounting purposes
3.2.2.2 CORPORATE CHARITIES
Charitable organisations incorporated with legal personality in the
jurisdiction concerned
26
Table 1: Sector specific characteristics, accountability challenges and international practice
Sector Type:
Value/ideology
Purpose
Employee motivation
(usually)
Sources of income
Nature of transactions
From who
For what
To whom
By what means
Standard Setter
Objective of General
Purpose Financial
Reporting
Qualitative
characteristics of
relevant information,
faithfully represented
For-Profit Organisations
Not-for-Profit Organisations
(IASB, 2010)
Panel A: UNIQUE CHARACTERISTICS
Profit generation; narrow financial
Achievement of NPO social goals; social
interest
and public interest values
Commercial
Achieve organisational goals, often with
a charitable purpose for a public benefit
Self-interest (agent); conflict with
Collective interests (stewards) with
owners (principal)
stakeholders for organisational goals
Customers
Funders/donors/volunteers (voluntary)
Exchange
Primarily non-exchange with/without
restrictions
Panel B: ACCOUNTABILITY CHALLENGES
Director (Agent)
Trustee/director (Steward)
Financial wealth creation
NPO mission achievement
Present and potential investors, lenders Diverse stakeholders including:
Trustees/directors; regulators; funders;
and other creditors
employees and volunteers; and
beneficiaries
General Purpose Financial Reporting
Financial, non-financial & narrative
(IASB, 2010, para OB2)
reports (Ryan et al., 2014)
Panel C: INTERNATIONAL ACCOUNTING PRACTICE
IASB
None
To provide information about the entity n/a
that is useful to assess future net cash
inflows (decision-usefulness) and
management’s discharged of
responsibilities (stewardship) (IASB,
2010, OB4)
Comparable, reliable, timely and
n/a
understandable (IASB, 2010, QC19)
pres ent and potential i nvestors, l enders and other cr editors
Public Sector Organisations
(PSASB, 2014)
Public interest reflected through political
representation
To provide services that enhance or
maintain the well-being of the public
Public and/or political interest
Statutory taxation (involuntary)
Primarily non-exchange
Head of organisation/Ministers (Officer)
Public service delivery and management
Public service recipients and government
ministers representing the resource
providers (taxpayer)
General Purpose Financial Reporting
(IPSASB, 2014, para 1.6)
IPSASB
To provide information about the entity
that is useful to users for accountability
and decision-making purposes (IPSASB,
2014, para 2.1)
Comparable, reliable, timely and
understandable (IPSASB, 2014, para 3.2)
27
Table 2: Overview of online survey: seeking evidence to inform contemporary debates on developing IFRS for the not-for-profit sector
Closed-questions
Open-questions (narrative response)
Panel A: Practice and beliefs about contemporary NPO financial reporting, internationally
In relation to NPO financial reporting, survey respondents were
Respondents were asked: What do you see as the strengths or limitations of preparing
asked, which:
financial reports on this basis? We are particularly interested in any issues where you feel
the existing accounting framework:
Form of financial reporting they most frequently used
(e.g. cash accounting, accruals accounting, other)
Gives clear and helpful guidance on how to account for NPO specific issues, or
Financial reporting frameworks they used
Gives insufficient guidance on issues which need to be considered in NPO financial
statement, or
NPO-specific issues are adequately covered by these
frameworks
Is unduly demanding, or
(Further details of these three questions are reproduced in Table
Is difficult to apply to NPOs (please say why).
4)
Panel B: Perceptions of accountability relationships between NPOs and their stakeholders
Respondents were asked the extent to which they disagreed or
Respondents were asked:
agreed with a set of twelve statements regarding financial
When thinking about stakeholder groups and users of NPO financial reports, to
reporting information. These statements focused on exploring
whom do you see the NPO as being accountable and why?
perceptions about NPO financial reports relating to:
Do you have any further comments on the need for international standards for
Accountability, stewardship and decision usefulness
accounting by NPOs and the issues they should cover?
Selected desirable characteristics
(The full text of these statements is reproduced in Table 5)
Panel C: Implications for developing internationally converged financial reporting to facilitate NPO accountability
Respondents were asked the extent to which they disagreed or
Respondents were asked:
agreed with three statements regarding the potential
Please add any further comments in relation to the process of developing an
development of international standards for the NPO sector.
international standard for NPO accounting.
(The full text of these statements is reproduced in Table 6)
Do you have any further comments on the need for international standards for
accounting by NPOs and the issues they should cover?
28
Table 3. Profile of survey respondents
Panel B: World regions where respondents had specific experience of NPO financial
reporting (multiple regions were permitted so totals exceed the 605 respondents)
Panel A: Description of NPO Involvement by respondents
Principal form of involvement in financial reporting:
Code
%
Number
Africa
America
Asia
Europe
Oceania
World
Total
Working for an NPO; involved in its annual financial reports
E
40.1%
252
81
36
46
116
38
20
337
Board member /trustee of an NPO involved in its annual
financial reports
T
12.7%
80
14
6
9
48
12
3
92
Professional accountant involved in preparation of NPO
financial reports
PP
10.1%
63
29
10
17
27
6
1
90
Professional accountant involved in the audit or external
examination of NPO financial reports.
PA
13.5%
84
10
10
11
41
12
2
86
Not a professional accountant, supporting the preparation or
examination of NPO financial reports
GP
3.6%
29
15
3
7
4
2
1
32
Representative of a professional body for accountants
R
2.5%
16
Representative of regulator of organisations operating in the
not-for-profit sector.
R
0.3%
2
8
5
10
13
11
3
50
Accounting Standard Setter
R
2.6%
17
Funder
R
1.3%
9
Academic or researcher who studies the financial reporting of
NPOs
U
5.4%
35
8
7
11
19
7
7
59
User of NPO financial reports
U
165
77
111
268
88
37
746
Totals:
2.8%
18
100%
605
Panel C: Respondents’ extent of involvement with financial reporting by NPOs of in various income categories (numbers of respondents – more than one income band allowed. The
question allowed respondents to use GBP, USD, or EUR as the currency – but categories are presented in GBP for this table.)
< £30k
£30k- £300k
£300k -£3m
> £3m
1-9 NPOs
124
199
195
182
10-100 NPOs
32
46
31
23
>100 NPOs
8
5
7
2
164
250
233
207
Total
29
Table 4. Practice and beliefs about contemporary NPO financial reporting, internationally
Respondent category (see Table
3 for codes used)
E
N
T
%
N
PP
%
N
PA
%
N
GP
%
N
R
U
Total
%
N
%
N
%
N
%
Panel A: The form of NPO financial reporting with which respondents are most frequently involved
Cash
61
24%
16
20%
21
33%
13
15%
10
34%
11
25%
13
25%
145
24%
Accruals
175
69%
59
74%
41
65%
67
80%
15
52%
26
59%
29
55%
412
68%
Other**
16
6%
5
6%
1
2%
4
5%
4
14%
7
16%
11
21%
48
8%
Total respondents
252
100%
80
100%
63
100%
84
100%
29
100%
44
100%
53
100%
605
100%
Panel B: Financial Reporting Frameworks determining how NPO financial statements are prepared (multiple responses allowed; % of total N expressed))
Corporate Law
102
40%
43
54%
29
46%
48
57%
7
24%
12
27%
15
28%
257
42%
NPO Law
92
37%
42
53%
16
25%
41
49%
10
34%
14
32%
22
42%
237
39%
National GAAP
128
51%
37
46%
35
56%
50
60%
11
38%
23
52%
26
49%
310
51%
IFRS
64
25%
7
9%
17
27%
15
18%
3
10%
8
18%
7
13%
121
20%
IFRS for SME
24
10%
9
11%
8
13%
15
18%
3
10%
4
9%
2
4%
65
11%
IPSAS
3
1%
1
1%
1
2%
5
6%
2
7%
6
14%
3
6%
21
3%
Regulator
70
28%
27
34%
15
24%
27
32%
8
28%
12
27%
17
32%
176
29%
Funder
65
26%
11
14%
12
19%
22
26%
8
28%
13
30%
11
21%
142
23%
NPO standards
55
22%
19
24%
13
21%
31
37%
6
21%
13
30%
18
34%
155
26%
Other
18
7%
2
3%
4
6%
8
10%
0
0%
4
9%
5
9%
41
7%
Total responses
621
198
150
262
58
109
126
1525
Panel C: Respondents’ views on whether specific issues are adequately covered in national reporting frameworks (% of total N expressed, indicating that
each issue is adequately covered)
Reporting entity
149 59%
50
63%
29
46%
58
69% 11 38%
26
59%
20
38%
343
57%
Non-exchange transactions
151
60%
52
65%
39
62%
66
79%
15
52%
25
57%
26
49%
374
62%
Valuation - specific assets
92
37%
28
35%
23
37%
46
55%
9
31%
23
52%
19
36%
240
40%
NPO-specific liabilities
124
49%
44
55%
31
49%
58
69%
12
41%
22
50%
23
43%
314
52%
Fund accounting
132
52%
53
66%
41
65%
56
67%
10
34%
28
64%
25
47%
345
57%
Narrative reporting
115
46%
46
58%
31
49%
39
46%
11
38%
23
52%
20
38%
285
47%
Related party transactions
156
62%
53
66%
32
51%
66
79%
10
34%
28
64%
21
40%
366
60%
30
Table 5. Respondents’ perceptions of accountability and desirable characteristics
(Analysis of Likert scale responses where 1 = strongly disagree, 5 = strongly agree)
All
Sector Specific Accounting Issues
Panel A: Perceptions about accountability
The financial reports of NPOs should be published and available to anyone
Producing financial reports is a key means by which NPOs demonstrate their
accountability
NPO financial reports should demonstrate appropriate stewardship of
resources
NPO financial reports should be useful for decision making
Panel B: Perceptions about desirable characteristics
NPO financial reports should provide a key means of transparency
Users should be able to place a high degree of reliability on the financial
reports of NPOs
It is important that financial reports allow comparability between NPOs in a
given country
Financial reports should allow comparability between NPOs in different
countries
NPO financial reports should be clearly understandable by someone who has
no direct knowledge of the organisation
Group Mean (See Table 3 for respondent
categories)
T
PP
PA
GP
R
U
KruskalWallace
Mean
SD
E
4.223*
1.054
4.35
3.90
4.11
4.24
4.38
4.20
4.15
.017*
4.413*
.839
4.42
4.24
4.43
4.54
4.21
4.55
4.42
.369
4.509*
.745
4.57
4.41
4.46
4.48
4.38
4.59
4.49
.282
4.294*
.859
4.31
4.10
4.33
4.37
4.34
4.45
4.17
.097
4.517*
.762
4.53
4.36
4.52
4.58
4.62
4.59
4.45
.184
4.504*
.749
4.56
4.48
4.41
4.52
4.34
4.45
4.49
.472
4.026*
.998
4.06
3.81
4.03
4.04
4.03
4.16
4.06
.538
3.586*
1.074
3.69
3.30
3.51
3.52
3.66
3.64
3.62
.289
4.319*
.811
4.38
4.25
4.27
4.36
4.28
4.23
4.25
.537
31
Table 6. Perceptions about international financial reporting for the not-for-profit sector
(Analysis of Likert scale responses where 1 = strongly disagree, 5 = strongly agree)
Group Mean (See Table 3 for respondent
categories)
All
It would be useful to have international standards for NPO accounting
The not-for-profit sector should follow internationally converged financial
reporting standards.
Leading donors/funders of NPOs would value accounts prepared in
accordance with an international standard for NPO accounting
KW
Mean
SD
E
T
PP
PA
GP
R
U
3.876*
1.194
4.02
3.60
3.97
3.67
3.83
3.93
3.81
.018*
3.657*
1.172
3.80
3.49
3.86
3.42
3.38
3.93
3.30
.001*
3.844*
1.106
4.02
3.58
3.92
3.62
3.86
3.86
3.66
.010*
Table 7: Empirical findings: accountability challenges and developing international practice (analysis of narrative responses)
Accountability perceptions
To whom for what?
Accountability focus
By what means?
Benefit to NPOs and
stakeholders
Policy implications
Not-for-Profit Organisations – View of respondents
Evidence that those involved in NPO financial reporting rank different users of NPO financial reports, with
accountability to external stakeholders being prioritised over internal stakeholders, as follows:
Upward financial and fiduciary accountability to external regulators and funders
Downward social accountability to external beneficiaries
Identity accountability to internal trustees/board members
Downward social accountability to internal employees
Stewardship as the primary focus and decision-usefulness as secondary
Converged NPO-specific international financial reporting practice taking account of sector-specific
transactions
Exhibiting characteristics of: Transparency, reliability, understandability, and to a lesser extent, intracountry comparability; cross-border comparability
Reduce compliance burden internationally
Increase consistency globally
Address the need for guidance and/or international standards for the NPO sector
Develop international best practice guidance, or develop international reporting standards with the view to
seeking endorsement from national regulators.
32
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Accountability and not-for-profit organisations: Implications for developing international financial reporting standards
Financial Accountability & Management
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