Barriers to the Usefulness of Non‐profit Financial Statements: Perspectives From Key Internal Stakeholders

Abstract

AbstractThe extent to which financial reports are useful is of central importance in relation to the accounting standards that underpin them. This is as true of non‐profit financial reporting as it is of financial reporting in the commercial and public sectors. In this paper we report on our findings related to a research project focused on examining the usefulness of Australian accounting standards from the point of view of non‐profit directors, preparers of non‐profit financial statements and their auditors. Undertaking a series of round tables specific to each cohort, we examine the question of who is responsible, for what and to whom in the context of financial reporting. Our research reinforces a number of issues negatively impacting the usefulness of General Purpose Financial Reports (GPFRs) in the non‐profit sector. We draw particular attention to concerns around the financial literacy of non‐profit directors, potential misunderstandings in relation to financial profitability, and complexity across a range of issues, including revenue recognition. Overall, the project finds that there are manifest specific issues and aspects particular to the sector and that simply adopting the same approach with regard to accounting standards as taken in the for‐profit sector is insufficient to ensure the utility of non‐profit GPFRs.Undertaking round tables for non‐profit directors, preparers of non‐profit financial statements and auditors, we examine the issues negatively impacting the utility of General Purpose Financial Reports in the non‐profit sector. We draw attention to concerns around the financial literacy of non‐profit directors, misunderstandings in relation to financial profitability, and complexity across a range of issues, including revenue recognition.