Accountability and not‐for‐profit organisations: Implications for developing international financial reporting standards

Date01 May 2018
DOIhttp://doi.org/10.1111/faam.12146
AuthorLouise Crawford,Carolyn J. Cordery,Gareth G. Morgan
Published date01 May 2018
Received: 23 July 2015 Revised: 1 August 2016 Accepted: 1 August 2016
DOI: 10.1111/faam.12146
ORIGINAL ARTICLE
Accountability and not-for-profit organisations:
Implications for developing international financial
reporting standards
Louise Crawford1Gareth G. Morgan2Carolyn J. Cordery3
1RoberGordon University, Aberdeen Business
School,Aberdeen, UK
2SheffieldHallam University, Centre for Volun-
tarySector Research, Sheffield, UK
3AstonUniversity, Accounting Department,
Birmingham,UK
Correspondence
LouiseCrawford, Rober Gordon University,
AberdeenBusiness School, Aberdeen, UK.
Email:l.crawford2@rgu.ac.uk
Abstract
This paper provides empirical evidence which informs contempo-
rary debates on developing international financial reporting stan-
dards for not-for-profit organisations (NPOs). Drawing on a global
survey with respondents showing experience of NPO reporting in
179 countries, we explore: practice and beliefs about NPO finan-
cial reporting internationally; perceptions of accountability between
NPOs and stakeholders; and implications for developing interna-
tional financial reporting standards. Interpreting our research in the
context of accountability,we find considerable support for develop-
ing international financial reporting standards for NPOs, recognis-
ing broad stewardship accountability to all stakeholders as impor-
tant, but prioritising accountability upwards to external funders and
regulators.
KEYWORDS
accountability, international financial reporting, not-for-profit
organisations (NPO), stewardship
1INTRODUCTION
The not-for-profit sector represents a broad mix of organisations having accountability relationships to diverse stake-
holder groups for a range of social activities and objectives (Connolly, Hyndman, & McConville, 2013a; Dhanani &
Connolly,2012; Unerman & O'Dwyer, 2006a). However,although the academic literature has proposed accountability
frameworks for the sector, the ability of these frameworks to explainexisting financial reporting practice across the
globe and inform contemporary financial reporting developments remains un-explored. The current paper addresses
this gap by investigatingfinancial reporting practice and perceptions of not-for-profit organisations (NPOs) across the
globe. With particular focus on organisations with a charitable purpose, we analyse views from 605 survey respon-
dents who are involved in NPO financial reporting, operating across 179 countries in five world regions and world-
wide. Specifically we explore: (i) practice and beliefs about contemporaryNPO financial reporting, internationally; (ii)
perceptions of accountability relationships between NPOs and their stakeholders; and (iii) the implications for devel-
oping internationally converged financial reporting to facilitate NPO accountability. Our research is developed and
Financial Acc & Man. 2018;34:181–205. wileyonlinelibrary.com/journal/faam c
2017 John Wiley & Sons Ltd 181
182 CRAWFORDET AL.
interpreted through accountability theory. Our findings highlight considerablesupport for developing internationally
converged financial reporting standards for NPOs, with survey respondents recognising broad stewardship account-
ability to all stakeholders as important, but prioritising accountability upwards to external funders and regulators for
financial and fiduciary concerns.
A major part of executing accountability to key stakeholdersis providing ‘high quality accounting and reporting’
information(Connolly et al., 2013b, p58). Indeed, the Charity Finance Group (CFG) Symposium (2012) identified a need
for a ‘shared understanding’ for NPOs’ financial reporting so that donors, beneficiaries and global networks can use this
information appropriately. Arguably,financial reporting will constitute one means by which NPOs can execute plural-
istic accountability to their multiple stakeholders, together with non-financial and narrative reporting (Ryan, Mack,
Tooley, & Irvine, 2014). However, in a majority of countries across the world, there are no NPO-specific standards,
financial reporting lacks a sector-specific conceptual framework, and regulation of the standards that exist is often
poor (Burger,2012; Cordery, 2013).
The NPO sector exhibits unique characteristics compared with the for-profit and public sectors, operating ‘in an
environment of primarily non-exchange transactions with voluntary funders’ (Ryan et al., 2014) (Table 1, panel A).
This creates challenges for an NPO to demonstrate accountability to its diverse stakeholders for achieving its social
mission (Table 1, panel B) (Lennard,2007; O'Dwyer & Unerman, 2007; Laughlin, 2008; Dhanani & Connolly, 2012).
Compared with the for-profit sector, there are no owners to whom accountability for financial wealth creation can
be prioritised (Table1, panel B). Indeed, the singular focus on prioritising reporting to investors and lenders to facil-
itate economic decision-making,1as captured in the International Accounting Standards Board's(IASB's)conceptual
framework (Lennard,2007; IASB, 2010; Ryan et al., 2014) (Table 1, panel C), is not appropriate to the NPO sector.Nei-
ther is the International Public Sector Accounting Standards Board's (IPSASB) conceptual framework, which identifies
primary users of (public sector) financial reports as service recipients (public and their political representatives) and
resource providers (taxpayer)2‘for accountability [stewardship] purposes and as input for decision making’ (IPSASB,
2014, p4) (Table 1, panel C). Contemporarydebates recognise that there is no international equivalent of the IASB
or IPSASB for the NPO sector (CCAB, 2013a,b; CIPFA, 2015; IFRS Foundation, 2015; MANGO,2015).3Indeed, the
research presented in this paper is timely given that, at the time of writing, the IFRS Foundation is consulting on
whether IASB should extend its remit stating:
There are calls for international standards for the not-for-profit sector to be developed The [IFRS
Foundation] Trusteescontinue to strongly support the need for transparent financial reporting require-
mentsfor not-for-profit bodies. Given the demand for standards to be created for that sector and the lack
of an international standard-setter to do that, the Trusteeswould welcome views on whether the scope
of the organisation's mandate should be expanded to encompass not-for-profit bodies (IFRS Foundation,
2015, para 22).
Our research responds to calls (Leo, 2000, p2) to undertake research ‘to provide answers to the accounting prob-
lems’ facing NPOs, and to convince ‘doubters’ that NPO accounting standards arenecessary. Ryan et al. (2014, p397)
also call for research, noting that there has been little attempt ‘to link financial reporting diversity of practice [across
the globe] to the enhancement of sector accountability’.
We answer these calls in several ways.Firstly, in contrast to many jurisdiction-specific studies, we investigate con-
temporary NPO financial reporting practice internationally, together with beliefs about executing NPO accountabil-
ity responsibilities. Secondly, much attention in the academic literature is aimed at understanding for-profit practice
(Lennard, 2007; Zeff, 2007) and the politics of standard-setting (Baskerville& Pont Newby, 2002; Crawford, Fergu-
son, Helliar,& Power, 2014), with comparatively little attention devoted to how international financial reporting might
be perceived and developed for the NPO sector.By contrast, this research investigates the extent to which develop-
ing NPO-specific International Financial Reporting (NPO-IFR) would be supported by the sector. Finally,we explore
qualitative characteristics and types of NPO-specific transactions perceivedto be important if NPO-IFR standards or
guidelines were to be developed.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT