Standardised finance system promises to cut charity red tape
22 July 2019 at 8:16 pm
The Australian charities sector should keep a close eye on a plan to develop international finance reporting standards, experts say.
International Financial Reporting for Non-Profit Organisations (#IFR4NPO), developed by Humentum and the Chartered Institute of Public Finance and Accountancy (CIPFA) with support from The Ford Foundation and Open Society Foundation, was launched last week in Washington DC.
The organisations involved said the project aimed to bring clarity and consistency to the sector and reduce the burden for charities and funders in meeting multiple and conflicting financial reporting requirements.
The project’s objectives include setting a clear consistent benchmark of what good financial reporting looks like for NFPs, supporting greater harmonisation of funders’ financial reporting requirements to save time and administrative costs, and providing a basis for comparison between NFPs across jurisdictions.
David Gilchrist, professor at the University Western Australia business school, said the initiative wouldn’t make a big difference to Australian charities due to national accounting laws, but it would spark a debate about the need for a standardised system in Australia.
“We have a transaction-neutral set of accounting standards, which really means that they’re not designed for any particular sector,” Gilchrist told Pro Bono Australia.
“This project will reinforce the need for a set of accounting standards that are fit for purpose for the charitable and not-for-profit sector.”
He also said it could give Australia a good model to work off.
“Potentially, this project gives us a good example of what might be contained in not-for-profit and charitable specific standards and what kinds of things we might consider in Australia,” he said.
Gilchrist said under the current system, it was often costly for charities to apply all the different accounting standards in financial reports, and the information in them often wasn’t helpful for charities or funders.
“Accounting standards often principally look at the financial aspects of the organisation, whereas a lot of stakeholders are more interested in effectiveness of the charity and not for profit as opposed to the financial management of that organisation,” he said.
Ian Carruthers, CIPFA’s standards chair, said an important part of the initiative was that it was designed by people who worked in the charity sector.
“As a charity itself, CIPFA is delighted to be able to bring its standard setting experience and contacts across national and international standard setters to create this unique partnership with Humentum,” Carruthers said.
The standardised system will be launched in 2024.
If the proposals relate to reporting of outcomes and activities I think it might be very useful. If the proposals are going to focus on recognition and measurement rules, I think there are other alternatives for Australian entities. I discuss developing a simpler, and better, reporting framework in Australia in a LinkedIn article at https://www.linkedin.com/pulse/developing-simpler-better-reporting-framework-david-hardidge/
Those proposals could help with “matching” of grant revenue to grant expenses, a major bugbear of charities under current Australian accounting standards, that is likely to largely continue under the new standards that started 1 July 2019 (for 30 June year ends).