NPOs operate in various sectors, are of various sizes in terms of their operations, governed by different reporting guidelines e.g GAAP, IFRS , country specific reporting standards etc. Comparability this can be a challenge and complex. If NPOs are in same industry, sector ,same size, other indicators can be used to make comparisons, eg based on the Financial statements information, compare unit cost of various outputs, overhead costs etc
You state that “NPOs have so many different reasons for existing, and are so different from each other”. But the same is also true of commercial businesses. Having standards for financial reporting in the commercial sector enables investors to compare businesses, whether in different sectors or not, and make decisions on their investment. But anyone wanting to make a major investment would be foolish if they looked at nothing but the financial statements.
Similarly with NPOs. Financial reporting standards will enable donors and potential donors to compare different NPOs. But any donor looking at nothing but the financial statements would be acting foolishly.
From 20 years’ working with NPOs in South East Asia, the lack of consistent financial reporting has been a major barrier, hindering local NPOs from working with their international counterparts. I am therefore extremely excited at the prospect of common reporting standards.
This is possible with International Financial Reporting Standard for NPO’s, though different programs but same objectives to serve their communities.
If NPOs are reported on the same basis there are things that can be compared especially those in the same space, for instance if NPOs are in the refugee area, agriculture, food security then they have targets they have that are similar and can be compared if achieved or not? Hence comparison is possible and necessary.
One of the stated aims of the IFR4NPO Project is to improve the comparability of Non-Profit Organisations’ general purpose financial reports (in other words, an their annual audited accounts).
But NPOs have so many different reasons for existing, and are so different from each other – is this even possible or advisable? In the businesses world, readers of financial reports might compare profitability or return on investment for companies in similar sectors. But these measures are usually not relevant in the non-profit sector.
What aspects of NPO financial reports, if any, do you think it might be useful to compare between entities, assuming they were all prepared on the same basis?