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Not-for-profit financial reporting:

An institutional analysis of
practices and beliefs across the
Voluntary Sector and Volunteering
Research Conference 2014

Louise Crawford, University of Dundee
Gareth G Morgan, Sheffield Hallam University
Oonagh B Breen, University College, Dublin, Ireland
Carolyn J Cordery, Victoria University of Wellington, New Zealand


Note: This is a working paper in progress. Many of the points are included at outline
level only - the arguments are far from complete. Much of the underlying data is
available in the full report of this study (see Crawford et al 2014) but is not directly
discussed in this paper. Please contact the authors before citing in order to get the
latest version.
1. Introduction
Financial reporting is an important aspect of not-for-profit organisations (NPOs)
accountability. Amongst other things it assists philanthropists and government
purchasers in making decisions as to whether to donate or contract with specific
However, at present there is a huge variation in the requirements and practices of
NPOs across the globe with regard to financial reporting. This leads to the obvious
question of whether it would be beneficial both for NPOs themselves and for users
of NPOs financial statements to have international standards for NPO financial
reporting as already applies to a considerable extent in the commercial sector and
to some extent in the public sector (see below). It is worth noting that many funders,
and increasing numbers of NPOs themselves operate across multiple countries, and
are increasingly seeking cross-border arrangements.
This paper examines the case for an international NPO financial reporting standard in
order to develop an institutional analysis of practices and beliefs across the globe
regarding NPO reporting. It draws on the findings of a multi-national study assessing
the case for the development of international standards for financial reporting by not-
for-profit organisations (NPOs). The study involved a literature review and an
international survey seeking to gain the widest possible views from those engaged
with NPO financial reporting throughout the world over 600 responses were
received with direct experience of NPO accounting in 179 countries. See Crawford et
al (2014) for a full report of the study methods and findings.
2. Research Questions
The paper seeks to address the following research questions, each of which is
investigated by means of specific questions in the survey.
1. What institutional forces (i.e. - influences over NPO financial reporting and
demands upon NPOs to report) shape NPO financial reporting practice across
the globe?

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This question is addressed through the following questions in the survey (see
below). Responses to each of these are analysed by the country/region of the
respondent, and by the respondents role (e.g. NPO staff member, board
member, professional accountant preparing NPO accounts, auditor, standard
setter or regulator).
Q6 exploring what financial reporting frameworks determine
accounting practice
Q14 examining respondents perceptions of the main influences on
NPO financial reporting.
2. Is there evidence of a common financial reporting institutional logic in the
We sought to assess whether there is any evidence of a common meaning
system regarding NPO financial reporting. This is addressed through the
following survey questions which are also analysed by country/region:
Q4 exploring respondents beliefs about the benefits or difficulties of
harmonised standards
Q9 collecting beliefs about NPO specific issues in financial reporting
Q10/11 seeking respondents beliefs about the scope of an
international NPO financial reporting standard
Q12/13 seeking respondents beliefs about the purpose of an
international NPO standard
Q16/17 assessing beliefs about the level of qualification needed for
those preparing or reviewing NPO accounts (recognising that many
NPOs, especially smaller ones, may not have access to professional
3. To what extent will/can national institutions be able to influence the
development of globally acceptable NPO financial reporting standards?
This was assessed from the survey, analysed by country/region in relation to
the following:
Q8 seeking respondents opinions on the usefulness of international
financial reporting for NPOs and whether they felt their own countries
could contribute to the development of such standards.

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4. What does this mean for the development of international financial reporting
standards for the sector? We seek to sketch out a research agenda going
This issue is explored in the debate on next steps following the study see
3. Existing Financial Reporting Frameworks
The development of International Financial Reporting Standards (IFRS) in pursuit of
converging financial reporting by commercial entities has been widely accepted across
the globe, as indicated by the fact that approximately 120 nations and reporting
jurisdictions permit or require IFRS for domestic listed companies (IFRS Foundation,
2013). In some countries such as UK, IFRS are also used for Government accounting.
The development of IFRS is governed by the International Accounting Standards
Board (IASB) which operates on a representative model.
However, many countries found that the special needs of public sector organisations
required specific standards, and the International Federation of Accountants (IFAC)
established an International Public Sector Accounting Standards Board (IPSASB) to
develop International Public Sector Accounting Standards (IPSAS). IPSAS have been
issued to cover a wide range of financial reporting issues specific to public sector
bodies, including reporting for outcomes. IPSASB lists 10 countries which have
adopted IPSAS or plan to do so, plus a number of international bodies such as the
United Nations and OECD (IPSASB, 2013).
The emergence of common accounting frameworks for the commercial sector and
public sector has led to debates regarding the possible benefits of international
standards for NPO accounting (e.g. Ashford, 2007). In particular, it has been asked
whether NPOs could be required to report directly either under IFRS or IPSAS
although specific problems with issues such as non-exchange transactions (e.g.
donated income) are widely highlighted (Davies, 2012; Ashford, 2007; CCAB, 2013).
Some countries, such as the UK, already have detailed NPO accounting requirements,
at least for charitable NPOs (Charity Commission, 2005) and the extent to which such
standards could or should be replaced by an international standard is the subject of
considerable debate.
4. Theoretical framing
We adopt an institutional approach to examine embedded cultures, norms and beliefs
that infiltrate the organisational field of NPO financial reporting across the globe.

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Such institutions may be taken for granted and practiced without cognition. Others
may capture the logic or ideology of the dominant advocating power that influences
national reporting practice. In so doing, we examine practices across the globe, and
investigate audience perceptions of current institutional practice and which voices are
likely to be influential if international financial reporting for NPOs were to develop.
We consider the extent to which there is evidence of a pull towards conformity
and/or institutional contradictions (Lepoutre and Valente, 2012) that influence
financial reporting practices in different jurisdictions. We evaluate whether the
introduction of international financial reporting standards for NPOs would be
welcomed by participants in the field.
As outlined in the literature review (see Crawford et al 2014, chapter 2) NPO financial
reporting is characterised by national reporting traditions within national regulatory
frameworks. This national focus contrasts with international financial reporting
developments that were initiated in the 1970s for public interest entities. International
accounting standards for the corporate sector emerged from the Anglo-American
belief that globalised capital markets will best serve the interests of society, and
therefore there was a concomitant demand for converged decision-useful
information for investors (Whittington, 2005; Cafferman and Zeff, 2007).
Interestingly, in recent years, there has been growing interest expressed by various
national and international regulators (Davies, 2012; Ashford, 2007; Ryan et al
forthcoming) in exploring the development of international financial reporting
standards for the NPO sector. However, no such capital market equivalent exists for
public-benefit entities.
An organisational field has been defined as a community of organisations that
partake of a common meaning system and whose participants interact more
frequently and fatefully with one another than actors outside the field (Hofman,
1999). In the context of the not-for-profit field, a common meaning system captures
notions of public benefit and offering services to promote societal well-being in
general and specific groups in particular. DiMaggio and Powell (1983), in their
appreciation of the areas of the for-profit sector, define the organisational field as
those organisations that, in aggregate, constitute a recognised area of institutional
life: key suppliers, resource and product consumers, regulatory agencies, and other
organisations that produce similar services or products (p18). Implicit in this
definition is that the organisational field is constituted by the interactions between key
stakeholders. To characterise the NPO institutional field, constituent stakeholders can
be determined from the literature, as determined by Ebrahim (2003) and Keating &
Frumkin (2003). To elaborate, we determine that the institutional life of NPOs, and
institutional forces that exist, emerge from organisations and individuals that include
practices, norms and beliefs of: directors and trustees, staff, volunteers (suppliers of
service); beneficiaries directly and the community indirectly (resource and product

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consumers); and for example, charity regulators, national governments, tax
authorities, standard setters (regulatory agencies). In addition, institutional life of
NPOs necessarily includes the sector-specific institutional forces emerging from
funders and donors of financial and operational resources.
Institutions are created from various pressures which are exerted to maintain the
status quo or motivate change within a given field. It is at the intersection of these
forces to either maintain or change practice that tensions arise within any given field.
Pressures arise from adhering to regulatory requirements, conforming to professional
norms and/or copying embedded taken-for-granted practices. These three elements
of institutions are known as regulative, normative and cultural-cognitive. These
elements exist on a continuum, underpinning institutional logic, and influencing
practice through coercive, normative and mimetic mechanisms, respectively
(Contrafatto, 2014).
It is important to explore what national institutional forces currently shape NPO
financial reporting in different jurisdictions and whether there is overall support from
diverse jurisdictions to develop internationally converged NPO accounting practice.
As Crawford et al., (2014) state:
International accounting regulation is an active political process one which
is characterised by a range of institutions entering the process at different
times with different agendas (p5)
Such an analysis of the institutional forces will enable commentators and policy
makers to assess the form that any such NPO accounting standard(s) should or could
take, and the challenges that emerge to implementation of any such standard(s) in
national jurisdictions within the global field. In order to develop implementable
standards, the advocating standard setter will have to integrate many different
national interests, recognising that the institutional logic of one group may be
contested and resisted by another in pursuit of developing globally accepted
financial reporting standards of practice.
5. The study
The study on which this paper is based (Crawford et al 2014) reviewed a wide range
of literature on NPO accounting, and the debates which have emerged regarding the
applicability of international standards and the various legal frameworks applicable. It
considered the issues which should be addressed in any international standard for
NPO financial reporting. It also explored whether such a standard would lead to
greater accountability or whether obstacles would mean insufficient benefits to justify
NPOs adopting a harmonised international framework. Moreover, if such a
framework were to be created, there are key questions as to the extent to which it

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should draw on IFRS or IPSAS, or whether new standards should be developed
separately from either of those roots (ibid chapter 2).
To gain an initial understanding of views on these issues, an online survey was
designed to seek the views of the widest possible range of stakeholders working with
NPO accounts including finance staff in NGOs, accountants, auditors and standard
setters (ibid, chapter 3). The survey comprised a mixture of closed (multiple option)
questions and open questions inviting narrative responses. The study was
commissioned by a steering group of accountancy bodies and others with an interest
in NPO accounting, and with their support, the survey generated over 600 responses,
reporting direct experience of NPO accounting in 179 countries. Respondents
contributed over 63,000 words of narrative comments on the issues.
The study assessed the extent of consensus on the development of international
accounting standards for NPOs, and highlighted specific issues that currently limit
accountability and which would be necessary to be include if such standards are to be
developed and implemented. See Crawford et al., (2014) for findings from closed
questions (chapter 4) and from the narrative questions (chapter 5).
6. Summary of Headline Study Findings
A full discussion of the conclusions and implications of the survey is given in Crawford
et al (2014, chapter 6). However, key findings may be summarised as follows:
The majority of survey respondents (72%) indicated that they thought it would
be useful to have international standards for financial reporting by not-for-
profit organisations (NPOs) though respondents interpreted the term
standards in different ways.
Many respondents, especially those involved with NPOs operating in
developing countries, would welcome a standard if it could contribute to
resolving the diverse and inconsistent demands from funders.
However, 14% were opposed to an international NPO standard. The
strongest objections appear to come from countries such as the UK, which
already have well developed frameworks for NPO accounting.
This study provides a potentially significant first step towards establishing whether or
not there is a case for developing harmonised international standards for NPO
financial reporting. Much more analysis and discussion will be needed between
interested parties before the results of this work can lead to operational
developments in terms of possible new standards for international NPO financial
reporting. Nevertheless, the findings presented in this study have the potential to
inform the debate and move that discussion forward.

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7. What institutional forces shape NPO
financial reporting practice across the
The survey found that the vast majority of types of accounting experienced by survey
respondents show that accruals accounting (68% of stakeholder responses) is
predominantly practiced across the globe, however a significant minority of
respondents report experience of cash accounting (24%) by NPOs and fewer
respondents experience forms of mixed cash-accrual methods of accounting see
Table 1. Financial reporting frameworks governing these types of NPO accounting
are most frequently based on national GAAP, national company law and national
sector-specific law. Very few respondents experience IFRS reporting frameworks
within the sector and IPSAS are rarely practised.
Table 1: Survey response profile by world region

Note: This table profiles the survey respondents by world region. Panel A shows the types of NPO
accounting that survey respondent normally experience (Q5) by geographic region. Panel B shows
the types of financial reporting frameworks (Q6) that govern how NPO financial reports are
N % N % N % N % N % N % N %
Cash 68 41% 17 22% 38 34% 46 17% 12 14% 7 19% 188 25%
Accrual s 82 50% 55 71% 55 50% 211 79% 66 75% 25 68% 494 66%
Other** 15 9% 5 6% 18 16% 11 4% 10 11% 5 14% 64 9%
Total responses 165 100% 77 100% 111 100% 268 100% 88 100% 37 100% 746 100%
Corporate Law 61 16% 23 12% 34 13% 158 20% 29 13% 16 15% 321 17%
NPO Law 43 11% 26 14% 38 14% 154 20% 18 8% 15 14% 294 15%
Nati onal GAAP 78 20% 46 24% 47 18% 152 20% 51 22% 19 18% 393 20%
I FRS 47 12% 13 7% 39 15% 33 4% 21 9% 17 16% 170 9%
I FRS for SME 23 6% 7 4% 9 3% 20 3% 23 10% 3 3% 85 4%
I PSAS 7 2% 2 1% 3 1% 5 1% 5 2% 2 2% 24 1%
Regul ator 37 10% 20 11% 35 13% 94 12% 23 10% 10 9% 219 11%
Funder 60 16% 22 12% 31 12% 46 6% 28 12% 8 8% 195 10%
NPO standards 19 5% 24 13% 20 8% 99 13% 15 7% 11 10% 188 10%
Other 6 2% 5 3% 8 3% 10 1% 15 7% 5 5% 49 3%
Total responses 381 100% 188 100% 264 100% 771 100% 228 100% 106 100% 1938 100%
Panel B: Fi nanci al Reporti ng Frameworks by worl d regi on
Worldwide Total
Panel A: Types of Accounti ng used by worl d regi on
Africa Americas Asia Europe Oceania

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determined, by geographic region. Percentages are calculated as the number of responses received
for type of accounting or financial reporting framework in a particular geographic area, divided by
the total number of responses received in respect of that area. For example, 494 respondents are
encounter accrual accounting out of the total 746 responses received across all regions, which is 66%.
In considering the main national influences on NPO financial reporting, stakeholders
broadly agreed that coercive pressure from national legislation, national GAAP and
regulator demands are prevalent. There was no significant belief expressed that
beneficiaries/service users influence NPO financial reports though some stakeholders
believe the NPOs mission influences the content of NPO accounts. These diverse
views about influences raise further questions about the nature of NPO accountability
and stewardship perceptions expressed by stakeholders. These beliefs about influence
reflect the stakeholder experience of NPO financial reporting frameworks across the
globe in the light of the range of NPOs they encountered (see Crawford et al 2015,
chapter 3). Arguably, national legislation, GAAP and regulator-requirements will have
to be considered by any organisation setting out to develop international standards
for national NPOs. Any such standard setting strategy will have to be cognisant of
national regulatory frameworks already embedded in distinct jurisdictions, and the
process will have to be inclusive of diverse NPO stakeholders, to ensure that
developed international NPO financial reporting standards can be complied with and
enforced at the national level.
Table 2 summarises some of the main beliefs of respondents regarding the influences on
NPO financial reporting.

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Table 2: Stakeholder beliefs about the influences on NPO financial reporting

Note: for the full legend of the statements on which stakeholders were asked to
express the extent to which they disagree or agree, please refer to Crawford et al
(2014, Appendix B, Q14).
8. Is there evidence of a common financial
reporting institutional logic in the field?
Analysis of responses to closed and open questions in the survey suggest there is a
view held by a majority of stakeholders in the field that harmonized international
standards would be useful to address a number of sector specific accounting issues
as indicated in the headline findings above. However, beliefs about the scope of any
such standard are not aligned and interesting country specific differences are
9. Conclusions - Institutional analysis
Coercive pressures through national legislation and jurisdictional GAAP are dominant
in many geographical areas. However, there are notable differences as to where these
pressures emerge from. For example, coercive pressure from funders is significant in

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African NPOs and less so elsewhere. Normative pressure from the accounting
profession is not particularly evident, as implied by the lack of support for IFRS or
IPSAS. This may reflect such international standards for the corporate and public
sector reporting are not adequate or appropriate for third sector reporting.
The survey findings (and the supporting literature analysis) provide a rich pool of
insights into the institutional forces surrounding NPO financial reporting which this
paper explores. In answer to the research questions posed at the outset, the following
conclusions can be offered.
(1) The study shows that NPO financial reporting is subject to a huge range of
institutional pressures, which vary considerably between countries. Three broad
institutional pressures can be identified.
Firstly, in regions such as the UK and Switzerland, with strong frameworks or
standards for NPO reporting, the dominant institutional pressure is from the
regulatory framework itself and the regulatory bodies behind this. So, for example,
in the UK, the Charities SORP and the underlying legislation which mandates use
of the SORP except by the smallest charities, and the associated powers of the
Charity Commission for England and Wales (CCEW) and the Office of the Scottish
Charity Regulator (COSCR) combine to create a huge pressure to follow this
regime. Whilst it is rare for CCEW or OSCR to take regulatory action against a
charity purely on the issue of SORP-compliance, charities are in practice under
strong pressure from their auditors and independent examiners to comply. Of
course, UK charities are also under pressure to meet the needs of funders and
(where applicable) their members, but they come much lower on the list of
institutional demands. Few charities would depart from SORP for their published
accounts purely to please a funder.
Secondly, there are regions where the dominant institutional pressure on NPO
reporting is a requirement to follow for-profit accounting standards such as IFRS,
with little or no specific recognition of their NPO status. This may arise from
general legislation (not NPO-specific) or from accounting standards which in
practice are mandatory for professional accountants. In this case the accounting
standard setter becomes the dominant institution. This is the case, for example, in
Australia with its sector-neutral approach to financial reporting.
Thirdly, there are regions where there are few if any regulations on NPO
reporting, and the dominant institutions become the main funders of the NPO.
Survey respondents mentioned funders with very specific financial reporting
requirements indeed some NPOs were torn between different and event
conflicting reporting requirements between differing funders on issues such as
accounting for capital expenditure. These issues were mentioned particularly

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frequently by respondents working with African NPOs, and in developing
countries in Asia.
(2) With regard to the question of whether of not there is evidence of a common
financial reporting institutional logic in the field, the results are inconclusive. The
survey found consensus on many of the specific problems associated with NPO
financial reporting for example, valuation of NPO-specific assets, fund
accounting, narrative reporting. But whilst these problems were generally
acknowledged, there was not clear evidence of a common logic.
For example, many respondents recognised that the need to account for restricted
funds is a key issue for NPOs, but different approaches are used in practice. The
norm in many countries is not to do any form of fund accounting on the primary
statements of an NPO so, for example, all funds both restricted and unrestricted
are amalgamated into a single income statement. In others, the approach is to
treat unexpended restricted funds as liabilities on the balance sheet. However, for
countries which follow the Charities SORP (developed for the UK and Ireland but
also used elsewhere) the income statement is divided into a multi-column
statement of financial activities, showing movements on restricted and
unrestricted funds in separate columns.
Moreover, the study found that whilst the majority of respondents (72%) were
broadly sympathetic to an international NPO standard a significant minority were
strongly opposed. Clearly those opposed to the basic principle of an international
standard are unlikely to have much in common in terms financial reporting logic
for NPOs as compared to those who favour such a standard.
(3) In considering the extent to which national institutions be able to influence the
development of globally acceptable NPO financial reporting standards, most
survey respondents where relatively positive that their country would be able to
contribute to such developments (although it must be stressed that survey
respondents were self-selecting, and it may have attracted more interest from
those who felt able to engage with standard setting processes). Nevertheless,
there may be many obstacles in practice, particularly as any standard setting
approach will require meetings, and those with the resources to travel to meetings,
or at least to engage electronically in the discussions, are likely to be dominant in
such processes. Moreover, those national institutions with considerable
experience in the setting of financial reporting standards would have a natural
(4) Finally, we sought to consider what the study findings mean for the development
of international financial reporting standards for the sector. As indicated in the
section above, the study sought only to raise issues, to identify the extent of

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support for international standards for NPO reporting, and identify key issues
which such standards would need to address. But the study found that even the
notion of an accounting standard may well have been interpreted differently by
various respondents. There were also big differences of views as to whether a
NPO standard should apply to all NPOs, or only the largest clearly the nature of
a standard aimed only at large NPOs would be very different from a standard
designed to include the smallest.
Nevertheless, the study found a considerable appetite by those directly involved in
NPOs (for example finance staff, board members) to engage in a standard setting
process it does not appear that an NPO financial reporting standard would be
well received by NPO practitioners if it were developed purely by traditional
accounting standard setters. The study suggests a considerable wish by the NPO
sector to own or at least to have considerable influence in the development of
any new international standard.
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The study reported in this paper was commissioned by CCAB whose membership
comprises five major chartered accountancy bodies - ICAEW, ACCA, CIPFA, ICAS and
Chartered Accountants Ireland. However, all conclusions in this paper are the
authors own.

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Other members of the research team who contributed include Faisal Sheikh and
Liafisu Yekini (Sheffield Hallam University); Ruth Kelly and Suyanto Suyanto
(University of Dundee).