Guide to Improving NFP Annual Reporting

The Institute of Chartered Accountants in Australia (ICAA) has released a report aimed at helping charitable and sporting Not for Profits improve their annual reporting standards.

The report, Enhancing not-for-profit annual and financial reporting, offers practical ways in which NFPs can improve their reporting standards following the results of an earlier enquiry commissioned by the Institute in 2006, revealing that sporting and charitable organisations require substantial improvement to their reporting standards.

The Institute’s CEO, Graham Meyer says today’s corporate reporting environment has changed considerably, with the introduction of Australian equivalents to international financial reporting standards (AIFRS) and a growing focus on corporate governance, including auditing standards now having the force of law.

Meyer says the extent to which these apply has created some uncertainty about NFP financial reporting requirements.

The Institute published Not-for-profit sector reporting: a research project last year and included several recommendations to enhance the quality of NFP financial and annual reporting.

Meyer says in order to help organisations improve transparency, completeness and clarity of annual reporting and to assist in finding a way through the complexities of the financial reporting guide the new report, Enhancing not-for-profit annual and financial reporting, outlines how the enhancements may be implemented.

The guide comprises of four sections – the annual report, the financial report, an overview of the legislation and resources and a list of resources that would be useful is meeting reporting obligations.

Recommendations to enhance NFP annual reporting include:
– NFPs provide more information in their annual reports regarding their objectives, explanations of their activities to achieve those objectives and how they are funding those activities
– NFPs provide more information regarding their future plans
– NFPs be more transparent in the governance arrangements
– Devise and include process KPIs that are relevant to their mission, objectives and activities
– Disclose their outputs, outcomes and impacts – this will demonstrate to the reader what their funding achieves rather than just how it is spent and
– The inclusion of explanations of trends and movements in quantitative data.

Recommendations to enhance NFP financial reporting include:
– Preparing a special purpose financial report for presentation to stakeholders
– The disclosure of segment information where it would enhance the information presented to the users
– Differentiating between ‘reciprocal’ and ‘non- reciprocal’ grants and adopting appropriate revenue recognition policies for each
– The consideration of the nature of and extent of non-reciprocal transfers they are involved in that result in the receipt of goods and services for no consideration
– The consideration of the extent to which they are in receipt of inventories for distribution
– The appropriate economic dependence disclosures and
– The impact of AIFRS.

Graham Meyer says that with many NFPs being entirely dependent on the voluntary commitment of members and the community, the report provides the necessary tools to produce annual and financial reports that are accountable and transparent in their operations and disclosures.

The report can be downloaded free from the Leadership section of the Institute website www.charteredaccountants.com.au/A116891092