Pay attention to charities: Edwards

CPA Australia has called on accounting standard-setters to turn their attention to the not-for-profit sector, including charities, nursing homes, universities, churches and political parties.

CEO David Edwards said that not-for-profit organisations represented a vast and forgotten sector of the Australian economy, in dire need of their own financial reporting guidelines.

“There are clear rules for account-ing in business and government, but non-profit organisations are left high and dry in the financial reporting landscape,” Mr Edwards said.

“There are no specific rules to follow when it comes to accounting for conditional government grants, pledges and donations, or time contributed by volunteers.

“It is therefore impossible to get a full and true picture of the financial health and viability of any charity, hospital, nursing home, political party or other non-profit organisation.”

The not-for-profit sector in Australia spends more than $27 billion annually, or 6.2 per cent of gross domestic product. It is also a significant employer, accounting for more than seven per cent of Australia’s non-agricultural jobs.

Areas covered by the sector include culture and recreation such as museums, zoos and service clubs; education and research including schools, universities and the CSIRO; health facilities such as hospitals and nursing homes; social services which includes child care centres, volunteer fire services and ambulance services; and the environment – such as animal shelters and recycling programs. Also not covered are areas such as development and housing (housing associations); law, advocacy and politics including ethnic associations, legal aid and political parties; philanthropic and volunteer groups such as foundations, exchange programs and disaster relief organisations, religious groups and business and member associations.

“Accountability is essential because many of these organisations receive significant funds from governments and private donations and enjoy tax-exempt status,” Mr Edwards said.

“It is imperative that their financial reports provide meaningful, relevant information to all donors and interested parties.”

CPA Australia has called on the Australian Accounting Standards Board and the Financial Reporting Council to address the need for accounting standards within the not-for-profit sector. It also wants non-profit organisations to press for appropriate standards.

CPA Australia’s Financial Reporting Centre of Excellence has issued a policy paper entitled Financial Reporting by Not-for-Profit Entities, authored by leading academics Sianne Flynne, Professor Ken Leo and Associate Professor Pat Addison of Curtin University of Technology. The report details the contribution of the sector in Australia and internationally, and the problems it faces.

CPA Australia director of accounting and audit Colin Parker said it was important to raise awareness of the not-for-profit sector, its economic significance and its financial reporting needs.

“On a global scale, if the sector was a country in its own right, it would be the eighth largest world economy, ahead of Brazil, Russia, Spain and Canada,’’ he said.

“Australia lags behind other countries in addressing the issue of accounting standards for not-for-profits, especially Canada, and it’s time we made it a priority on the financial reporting agenda.”

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