Charities have raised concerns about an international reporting standard for not-for-profit organisations being based on a framework developed for for-profit organisations.
A five-year project to develop international rules for charity accounting launched in September 2019.
Entitled International Financial Reporting for Non-Profit Organisations (IFR4NPO), the project is backed by the Chartered Institute of Public Finance and Accountancy (CIPFA) and Humentum, a global not-for-profit organisation working with humanitarian and development organisations.
A consultation on the issues involved ran from January to September 2021, and IFR4NPO has now published its summary of responses to the first part of the consultation.
International frameworks
IFR4NPO’s initial plan was to use IFRS for SMEs Standard the “foundational framework” for the project. But it said that respondents to the consultation “had some concerns with the use of a for-profit framework”, and they had told the organisation that “additional clarity was needed on how other frameworks would be used and what the guidance would comprise and cover”.
In response to this point, IFR4NPO said it would “engage further with you on the concerns raised to ensure that with the IFRS for SMEs Standard as the foundational framework we will provide a standalone set of guidance with non-profit organisations (NPO) appropriate conceptual basis that makes use of all the frameworks to provide NPO-specific reporting solutions. We will also ensure that it is clear which organisations we have in mind when developing the guidance”.
Respondents did agree that using existing international frameworks was a “pragmatic response to project resource and time constraints” but that “an entirely new framework or the use of International Public Sector Accounting Standards (IPSAS) might be preferable”.
IFR4NPO said that it would use international frameworks to develop the guidance in order that “it can be provided as quickly as possible” but that it would “use IPSAS where is provides the most appropriate reporting solutions for NPOs”.
The consultation covered a number of more specific accounting areas.
Foreign currency
For example, it provided a list of accounting issues specific to the sector that the guidance would need to cover. Respondents suggested a number of additional issues, with foreign currency transactions as one that was noted as a particular priority. IFR4NPO has said this will now be included.
In addition, IFR4NPO said it aims to “develop proposals that reflect the diversity of the sector, the capacity and capability of NPOs, and the sector preference for principles-based approach”, after respondents said “it was important to include non-financial information reporting but scope would be a key challenge due to sector diversity [and] different international frameworks”.
Respondents also said “NPOs may have difficulties in collecting, verifying and reporting data” when it comes to non-financial information.
Other issues
After reviewing the feedback, IFR4NPO is look further “at how the needs of internal stakeholders can be reflected and ensure that issues like reporting on the achievement of outcomes are included as part of the objectives of NPO financial reporting”.
It will also “aim to develop the accrual-based guidance so that it is proportionate to the needs of users and preparers, can be applied by a wide range of NPOs, and that greater consistency in requirements will assist in reducing reporting burdens”.
Respondents had said that “some NPOs would not have the resources, capacity or expertise to implement accruals” and that “cash-based reporting was adequate for some organisations and that some donors would still want cash reports”.
Next steps
Exposure drafts will now be released in three tranches. After each is released there will be a four-month consultation period in which responses and events will be held.
This will lead to the development of the final guidance.
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