Chartered Accountants Release NFP Reporting Guide

The Institute of Chartered Accountants in Australia (ICAA) has published a report 2003: Review of Not-for-Profit Financial and Annual Reporting. The information in the review is aimed to assist not-for-profit (NFP) organisations in ensuring that their financial and annual reports reflect best practice and withstand donor scrutiny. This should be a matter of some importance to NFPs, as recent press reports indicate a trend towards applying business principles to funding charities. Other literature suggests that donors and grantors will look for appropriate financial and other reports to assist them in their decision making.

The review of financial and annual reports of 22 NFP organisations from a variety of sectors was carried out by ICAA members employed in the sector or who provide audit and advisory services to the sector. The revenue received by these organizations in 2001 ranged from $286k to $165m.

The review found an acceptable level of compliance by NFPs with relevant legislation and accounting standards governing financial reporting. The authors, however, believe that the application of the financial reporting framework - the requirements of the Corporations Act or other relevant legislation - could be enhanced.

The clarity and content of annual reports requires improvement. Shortcomings included: reporting of objectives was usually limited to the organisation’s mission statement; the majority did not include explanations of organisational structure and decision making processes; limited use of statistical information; failing to disclose information regarding investment policies and inadequate disclosures of risk management approaches.

The review concludes that NFPs would benefit from the development of a financial reporting framework. It suggests that this framework could be based on the requirements of the Concise Financial Reporting provisions of the Corporations Law and Accounting Standard AASB 1039, Concise Financial Reports. This would enable organisations to combine annual and financial reports and also encourage a broader explanation of the NFPs’ results, financial position and activities.

The authors also strongly recommend that NFPs develop two kinds of key performance indicators (KPIs); “process KPIs” to measure the effectiveness of activities such as fundraising and administration and “impact KPIs” to measure the impact of delivery aspects of the NFP, such as the number of people assisted. .

The majority of audit reports were qualified on the basis that audit procedures regarding cash donations were restricted to amounts recorded in the financial reports. Anecdotally, the authors