Do Not‐For‐Profits Need Their Own Conceptual Framework?

• DOI: http://doi.org/10.1111/faam.12044
• Date: 01 November 2014
• Author: Christine Ryan,Janet Mack,Helen Irvine,Stuart Tooley
• Published date: 01 November 2014

Financial Accountability & Management, 30(4), November 2014, 0267-4424

Do Not-For-Profits Need Their Own

Conceptual Framework?

CHRISTINE RYAN,JANET MACK,STUART TOOLEY AND HELEN IRVINE∗

Abstract: This paper raises the issue of whether not-for-profit (NFP) oganisations

require a conceptual framework that acknowledges their mission imperative and

enables them to discharge their broader accountability. Relying on publicly available

documentation and literature, it suggests the current Conceptual Frameworks for

the for-profit and public sectors are inadequate in meeting the accountability needs

of NFPs. A NFP-specific conceptual framework would allow the demonstration

of broader NFP-specific accountability and the formulation of NFP-appropriate

reporting practice, including the provision of financial and non-financial reporting.

The paper thus theoretically challenges existing financial reporting arrangements

and invites debate on their future direction.

Keywords: conceptual framework, accountability, NFPs, non-reciprocal transfers,

volunteers

INTRODUCTION

Not-for-profit (NFP) organisations1play an important and growing role within

the global economy (Salamon et al., 2007; and Kreander et al., 2009).2With their

increasing economic and social significance (Weerawardena et al., 2010), the

practical and political importance of robust and comprehensive demonstrations

of NFP accountability, including financial accountability, is increasingly being

recognised (Ebrahim, 2003a and 2003b; Unerman and O’Dwyer, 2006; O’Dwyer

and Unerman, 2008; AcSB and PSAB, 2009; and ASRB, 2009).

∗The authors are respectively, Professor, Dr, Associate Professor and Professor at the School

of Accountancy, Queensland University of Technology, Brisbane. They acknowledge with

grateful thanks, the helpful suggestions to earlier versions of this paper by Professors Richard

Laughlin and Warwick Funnell, Dr Vassili Joannides and participants at the 2010 AFAANZ,

APIRA and ARNOVA Conferences, and the 2009 School of Accounting & Finance Seminar

Series, University of Wollongong.

Address for correspondence: Stuart Tooley, School of Accountancy, Queensland University

of Technology, GPO Box 2434, Brisbane, QLD 4001, Australia.

e-mail: stuart.tooley@qut.edu.au

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384 RYAN, MACK, TOOLEY AND IRVINE

Private sector NFPs, as voluntary, mission-oriented organisations, are distinct

from both for-profit and public sector organisations (Dacombe, 2011; and van

Staden and Heslop, 2009). For-profit organisations are driven by the measurable

goal of profitability and operate in an environment of arms length voluntary

exchange transactions. Public sector organisations are driven by economic and

political goals in an environment of involuntary funders and primarily non-

exchange transactions. In contrast, NFP organisations usually have a specific

purpose which is defined in their mission. They operate in an environment of

primarily non-exchange transactions with voluntary funders (Dacombe, 2011;

Ellwood and Newberry, 2006; and Pallot, 1992). In each of these sectors,

organisations operate in both a national and international context.

Conceptual frameworks are designed to create a strong foundation for the

development of financial reporting and accounting standards (FASB, 1978). The

FASB has defined a conceptual framework as ‘a coherent system of interrelated

objectives and fundamentals that is expected to lead to consistent standards

and that prescribe the nature, function and limits of financial accounting and

reporting’ (FASB, 1978). This definition clearly indicates the importance of

a conceptual framework being fit for purpose. Thus, unless the conceptual

framework identifies the objectives and function of financial reporting in a

particular context then the accounting standards that devolve from it will

not be appropriate for the specific information needs of those governed by

the framework. The International Accounting Standards Board (IASB) has a

program to develop a conceptual framework program for the for-profit sector.3

Their Conceptual Framework focuses on the reporting of financial information

to satisfy the decision usefulness needs of users of resources in capital

markets. Additionally, the International Public Sector Accounting Standards

Board (IPSASB) has a project which began in 2006, developing a Conceptual

Framework for public sector organisations (IPSASB, 2006a). The IPSASB argues

that the objectives of financial reporting for the public sector are significantly

different to those of the private sector, warranting a separate conceptual

framework (IPSASB, 2008). They argue that a conceptual framework that is

comprehensive will encompass both financial and non-financial information.

This will be vital for the development of the sector since it will allow financial

reporting to evolve as it satisfies the broader accountability requirements of

users, rather than solely satisfying a decision usefulness objective (IPSASB,

2010).

In different nation states, there is great diversity of accounting practice across

the NFP sector (Torres and Pina, 2003; and Irvine and Ryan, 2010). Further,

internationally, the introduction of International Financial Reporting Standards

(IFRS) and their degree of applicability to the sector have heightened the

uncertainty of relevant and applicable accounting practice. In this context, we

argue that NFP organisations require a purpose-designed conceptual framework

that acknowledges their mission imperative and enables them to discharge their

broader accountability. Relying on archival material in the form of standard

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