ICAA Not For Profit Report
25 September 2006 at 1:09 pm
A recent review released by the Institute of Chartered Accountants has shown that sporting and charitable not-for-profit (NFP) organisations require substantial improvement to their financial and annual reporting.
The review, and subsequent report, aim to help Australia’s 700, 000 est. NFPs improve the transparency, completeness and clarity of annual reports and to assist them in finding their way through the complexities of the financial reporting regime.
Findings from the review of their annual reports include:
– Both sporting and charitable NFPs fell down in explaining their future plans with 92% of the charitable NFPs and 86% of sporting NFPs failing to include future looking information;
– Sporting NFPs were shown to be particularly bad at providing transparent annual reports with 65% of annual reports failing to provide a clear understanding of what the organisation was trying to achieve and 79% failing to provide a clear statement of their objectives and how they have gone about funding activities;
– Transparency in governance was also an issue with 62% of charitable NFPs and 75% of sporting body NFPs failing to include separate Governance Statements in their annual report.
The review also revealed problems with financial reporting, specifically around the disclosure of economic dependence. The study identified that 70% of charitable NFPs and 68% of sporting body NFPs received grant income, yet only 42% of these NFPs disclosed their ‘economic dependence’, as required by the Australian Accounting Standards Board.
The Institute’s CEO, Graham Meyer said the free report should help NFPs with the application of relevant legislation and accounting standards within their financial reports and provide additional guidance on broader reporting issues.
“Most of Australia’s not-for-profit organisations are small and entirely dependent on the voluntary commitment of members. Notwithstanding, NFPs enjoy the trust of the broad community and irrespective of their size, the community assumes NFPs will spend their funds wisely and effectively,” he said.
“There is an expectation that NFPs, in particular charitable NFPs, will be more accountable and more transparent about their operations by improving disclosure and reporting and adopting contemporary governance practices.
In 2003 the Institute of Chartered Accountants in Australia published the results of a similar review which concluded that, while these organisations were complying with the basic statutory and reporting requirements, substantial improvements could be made in the clarity and content of their Annual Reports. It was also suggested that a NFP financial reporting framework was required – disappointingly, very little has changed since that review was conducted.
The free report, to help produce best practice not-for-profit reports, is available from www.icaa.org.au