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GUIDE TO GIVING 2016


Are the Tools Right for Not for Profits to Tell Their Story?


Ram Subramanian


“However, research conducted by the AASB indicates that many of the AAS based Not for Profit financial reports have not applied the reporting framework as intended”


It’s time to ask the burning question: what kind of information do donors to Not for Profit organisations really value and want to see? The answer is not so easy and part of the challenge arises from the diversity of stakeholders interested in the Not for Profit sector, writes Ram Subramanian. Policy Adviser – Reporting, for CPA Australia.


Profits generated and returns to investors are the measures that often signify success in the commercial world. The primary objective of financial reporting by corporates reflects this, focusing on providing information to capital providers so they can make informed investment decisions. In the world of Not for Profits however,


the stakeholders involved and their information needs can be very different. Profit and returns to investors are not the appropriate metrics to measure success. Whilst financial performance of Not for Profits does play a part in meeting the information needs of stakeholders, it is now becoming clear that stakeholders also want to see non financial metrics about how a Not for Profit has performed compared to its stated objectives.


It is often said that the term “Not for


Profit” is a misnomer. Not for Profits can and do make a “profit”. But their profits are not distributed to providers of capital, but rather they are used to further the achievement of their stated objectives. Financial reports presenting the


income, expenditure, assets and liabilities of a Not for Profit entity, along with its cash flows and accompanying note disclosures are important. This information demonstrates to stakeholders how well the entity has performed in managing its financial affairs and whether it can continue to remain financially viable. Financial reporting by Australian Not


for Profits is largely based on the Australian Accounting Standards (AAS) issued by the Australian Accounting Standards Board (AASB). Although the AAS are anchored on the international financial reporting framework developed for corporate entities that operate in capital markets, the AASB has adapted the international standards and simplified the framework so that other entities including Not for Profits can apply them in preparing their financial reports. However, research conducted by


the AASB indicates that many of the AAS


based Not for Profit financial reports have not applied the reporting framework as intended. Matters become even more complicated by the multitude of states/ territory and commonwealth laws for statutory reporting. Anecdotal evidence indicates that many Not for Profits, particularly those with insufficient resources, are struggling to meet the financial reporting obligations placed on them. To some extent, preconceived notions


of what information stakeholders want from Australian Not for Profits has driven statutory financial reporting. Providers of finance to the Not for


Profit sector are an important and diverse stakeholder group, and the information needs within this group can vary significantly. For example, a private donor might want information on the outputs a Not for Profit has delivered, a grant provider might want to know if the grant has been expended as agreed, or a prospective donor might want to know if the Not for Profit they intend to donate funds to has a sustainable future. Funding for the sector comes in many forms including private donations, member


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CONTACT THE NEWS TEAM: NEWS@PROBONOAUSTRALIA.COM.AU


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