Not for profit standards go global

7 Nov 16
Progress in setting global standards for not-for-profit bodies is gaining pace, as standard setters identify common issues and good practice

Convergence between national and international accounting standards has made significant progress in the past decade. The International Accounting Standards Board and International Public Sector Accounting Standards Board continue to work tirelessly to realise a vision of global accounting standards in the private and public sectors. However, progress in the not-for-profit (NFP) sector has been slower, despite large levels of interest in this area.

A recent CCAB study on financial reporting by NFP organisations found strong support for international standards specific to the sector. The research was based on the views of more than 600 people involved with NFP organisations in at least 179 countries. The problems around reporting in multiple jurisdictions with differing requirements were identified. With the largest charities working internationally, these problems are increasingly prevalent.

The research acknowledges that, despite the variety in size, legal structure and focus of the NFP sector in different jurisdictions, many organisations grapple with the same accounting issues that could be addressed by global standards or guidance. Problem areas include: accounting for non-exchange transactions; fund accounting; income recognition; gifts in kind; mergers; treatment of branches; and reporting on reserves.

The absence of global standards was also identified as a barrier to developing high-quality, appropriate standards within individual jurisdictions. The study documents the progress in developing and improving national financial reporting standards for NFPs around the world. These are commonly based on national legislation and national generally accepted accounting practice, and the study also found that fewer than half of respondents believed that key NFP reporting and accounting issues were addressed adequately within national reporting frameworks. There were also significant difficulties reported by those producing NFP financial statements under for-profit International Financial Reporting Standards.

In the absence of specialised international standards, many countries look to individual standard setters such as in the UK to guide their approach. The UK’s statement of recommended practice for charities has informed the development of standards and guidance as far afield as Singapore and Sierra Leone.

Last year, the IFRS Foundation consulted on whether the IASB, as the standard setter’s oversight body, should extend its remit to develop standards for this sector. This remit was rejected, due to the IASB’s existing work pressures. The issue was picked up by the International Forum of Accounting Standard Setters, a network of national accounting standard setters from around the world. As a result, a working group has been established to document approaches to common issues and build a database of practice to help move forward NFP reporting across the globe.

Benefits to establishing standard approaches extend beyond the immediate reduction in time and resources spent reporting to a range of donors and regulators. International standards would improve the quality of reporting and make it easier to understand performance and achievements. Charities would be more transparent, presenting a complete, accurate picture of their financial health and making a clearer case for support from donors and funders. Consistent reporting would also provide greater scope for performance to be compared, best practice shared and knowledge about what makes an effective NFP better understood.

The adoption of international standards has resulted in many equivalent benefits in the private and public sectors. Work is now starting on this to ensure NFP bodies reap these too.

  • Progress in setting global standards for not-for-profit bodies is gaining pace, as standard setters identify common issues and good practice
    Easton Bilsborough
    Easton Bilsborough is the technical manager for charities and not for profit at CIPFA

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