Not-for-profit sector accounting sector International Accounting Standards brewing.
Posted on 16 September, 2019 at 10:24
By Epaphras Chinyakuza
There is need to build the trust in the NPO sector and civil society space. So how can the Operations and Finance personnel in the different organisations best defend the sector? There are different ways in which we can restore and build this trust and this includes ensuring that we perform high quality work and then report on that work with full transparency and accountability to all our stakeholders. There is need for standards to be put in place that guide reporting for organisations across the sector.
Unlike the private and public sectors, the non-profit sector has no tailor made international accounting standards that are applied when reporting for the different organisations. Instead the trillions of dollars that are spent by our sector are reported on in all sorts of ways in different countries. This results in confusion, duplication, waste and sometimes fraud in international grant-making. This undermines transparency, accountability and trust in our sector.
The global community of non-profit professionals has been working with many partners for nearly 10 years to make the case for international accounting standards in the non-profit sector. This campaign started with a call to stand up for standards in 2011. In 2012. Representatives of the global community of non-profit professionals had a meeting with the representatives of the International Accounting Standards Board (IASB) and the International Public Sector Accounting Standards Board (IPSASB)
In 2014, a joint platform of accounting bodies, funded independent research into the “need for international accounting standards for not for profit organisations (NPOs)”. The research acknowledged that 72% of 605 respondents involved in NPO reporting in 179 countries agreed that, it would be useful to have international standards for NPO accounting.
After this research, the IASB was persuaded to consider extending its remit to cover non-profit accounting in 2015. However, despite receiving more responses than ever before to a public consultation on this matter, the IASB decided against this at that time. Crucially, the IASB's Trustees did state that they support the need for transparent financial reporting requirements for nonprofit organizations. They therefore decided that the IASB should be involved in any initiatives or working groups regarding financial reporting standards for the NPO sector and contribute as necessary.
The Chartered Institute of Public Finance and Accountancy (CIPFA) worked with the International Forum of Accounting Standard Setters (IFASS) to create a non-profit working group to take on this opportunity provided by the IASB.
Since 2017, CIPFA has been working to attract support from the funding community for the IFASS non-profit working group to develop much more robust and rigorous guidance on financial reporting for the non-profit sector. However, this requires extensive engagement and consensus building between accounting standard setters from many countries and other stakeholders especially funders, governments, regulators and non-profit organisations.
Some of the world’s largest funders of the non-profit sector globally for example, The Ford Foundation and the Open Society Foundations have agreed to be founding funders for this initiative. This initiative will solve a key pain point in a way that will benefit all international grant-makers.
This project of developing the guidance needed in the NPO sector is a 5-year project that will see some developments in reporting within the sector. This project was launched in July 2019. The International Accounting Standards that will be developed over the next 5 years will see to it that all key stakeholders across the world have been engaged in its development.
The representatives of the global community of non-profit organisations have organised events and roundtables in many countries over the course of the project in developing the world's first ever international financial reporting guidance for the non-profit sector. This will ensure that all the relevant stakeholders will be engaged in the process to a more transparent, accountable and trusted sector.