Finally, the nonprofit sector will get the international financial standards we need

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Finally, the nonprofit sector will get the international financial standards we need

Trust in our sector and civil society space are under attack. So how, as operations staff, can we best defend our organizations and our sector? By doing what we do best – ensuring we do high quality work and then reporting on that work with full transparency and accountability to all our stakeholders. This requires standards.

And yet unlike the private and public sectors, the non-profit sector has no international accounting standards. Instead the trillions of dollars that get spent by our sector get reported on in all sorts of ways in different countries, creating complexity, confusion, duplication waste and sometimes fraud in international grant-making. This undermines transparency, accountability and trust in our sector.

We, as a global community of non-profit professionals, have been working with many partners for nearly 10 years to make the case for international accounting standards in the non-profit sector. We started this campaign with a call to Stand up for Standards in the Charity Finance Yearbook of 2011.

This led in 2012 to a meeting with representatives of the International Accounting Standards Board (IASB) and the International Public Sector Accounting Standards Board (IPSASB), together with senior members of three leading UK professional accounting bodies and the Charity Commission.

In 2014, CAAB, which is a joint platform of the UK and Ireland’s accounting bodies, funded independent research into the need for international accounting standards for not for profit organisations (NPOs). This found 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.”

This research persuaded the IASB 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 NFP sector and contribute as necessary. We’d like to remember the 162 non-profit organizations that supported our campaign back in 2015, many of who wrote letters to the IASB, and therefore helped secure this commitment by the IASB. We’ve included the names of all those organizations at the end of this article to say thank you and acknowledge their vital support. We hope these NGOs will now engage in developing the new guidance.

We are extremely grateful for the leadership shown by CIPFA in working 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. This led, in 2017, to the launch of an international not-for-profit reporting platform on CIPFA’s website.

Since 2017, Humentum and CIPFA have 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, which requires extensive engagement and consensus building between accounting standard setters from many countries and other stakeholders especially funders, governments, regulators and non-profit organisations.

We are therefore thrilled that two of the world’s largest funders of the non-profit sector globally have agreed to be founding funders for this initiative: The Ford Foundation and the Open Society Foundations. Humentum has been working with these foundations for some years to help them grapple with the complexity, variability and sometimes questionable quality of their grantees’ audited financial statements. Ford and OSF are leading by example, backing an initiative that will solve a key pain point in a way that will benefit all international grant-makers. You can hear from John Bernstein, COO at Ford Foundation, about why they are backing the initiative.

Ford and OSF are the founding funders for this initiative, but we will need the support of many more funders if we are to achieve our ambition of developing the guidance needed over the next 5 years. If you are a funder who might be interested in making a contribution to this project, or can introduce us to a funder that might, please contact our Project Director Samantha Musoke, at sam.musoke@humentum.org, or contact me on Linked-in.

We were so excited to launch this project in the heart of our Humentum community at our conference attended by over 1000 non-profit professionals in Washington DC on July 11, 2019.

Posted: 04-06-2020

Dilemma donor rules or accounting principles

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