Attention, non-profits: a new standard for international reporting is coming

A groundbreaking project to develop the world’s first international accounting guidance for non-profit organisations is currently underway. Vivienne Russell spoke to project directors Sam Musoke and Karen Sanderson.

All over the world, says Sam Musoke, Project Director of IFR4NPO, there are finance professionals working in non-profit organisations who feel like they are alone. They go to accounting events and no one is talking about the specifics of working in a non-profit. They go to events for non-profits and everyone is talking about operational delivery and not about finances.

But that is starting to change thanks to a project Sam co-directs which has been giving the non-profit finance community a voice.

“So often we find people who go ‘My people, my non-profit finance people!’ and they’re finding each other,” she tells AAT Comment from her home in Uganda.

Setting the standard

International Financial Reporting for Non-Profit Organisations – or IFR4NPO for short – is a project that officially began work in late 2019. Its mission is simple but groundbreaking. To develop the first-ever globally applicable financial reporting guidance for non-profits such as charities and non-government organisations (NGOs). This will allow non-profits all over the world to produce better quality and more useful financial statements, helping them improve their credibility and access to funding.

Progress has been steady and project directors envisage the final guidance, called International Non-Profit Accounting Guidance (INPAG), will be ready by the middle of 2025.

It feels like we’re working as one double-faceted team. We’re really united in purpose.

Sam Musoke, Project Director of IFR4NPO

The project is being jointly steered by CIPFA, the UK-based public sector-focused professional accountancy organisation, and Humentum, which delivers advocacy and training programmes to build operational resilience and improve accountability and compliance for organisations carrying out humanitarian and global development work.

The IFR4NPO project harnesses the two organisations’ different but complementary expertise and networks.

“What makes this special sauce of CIPFA and Humentum so powerful is that [Humentum is] very well networked with non-profits, both local entities in a huge number of countries and international NGOs at headquarter level and funders and then CIPFA brings the professional accountancy organisations, the accountants, the standard setters, the audit community,” Sam explains. “It feels like we’re working as one double-faceted team. We’re really united in purpose.”

Between them, the two organisations have considerable convening power and are finding that by joining forces they are creating a space that hadn’t existed before.

There’s a huge burden on non-profit organisations where they have got multiple donors

Karen Sanderson, Technical Director for INPAG

Addressing the burden of inconsistency

The impetus for the IFR4NPO project came from the non-profit sector itself. Research carried out by CCAB found that 659 non-profit respondents from 179 countries (72%) said that an international accounting standard would be useful. While some countries have been developing their own standard in order to fill the gap, a lack of consistency only makes the problem worse and places considerable burdens on those charged with preparing accounts.

“Each donor has its own variant of what it thinks good financial reporting looks like,” says Karen Sanderson, Technical Director for INPAG, who steers the project from the CIPFA side and works out of the UK.

“So there’s a huge burden on non-profit organisations where they have got multiple donors in producing different forms of reporting. And one of our big hopes from this project is to bring the donor community a bit closer together in terms of the kinds of financial reporting information they need.”

The project has carried out a huge amount of engagement, outreach and consultation with stakeholder groups all over the globe. It has already run a consultation on a first Exposure Draft, that is proposed text for the guidance which is open for comments and may be amended in line with feedback received.

A consultation on a second Exposure Draft, which covers some of the accounting challenges unique to non-profits, launched in September and is running until March next year. Another consultation on a third and final Exposure Draft on accounts presentation is planned before the final guidance is published in 2025.

Working in unique reporting

The guidance that is being developed is based on the IFRS for SMEs accounting standard (which members can read about here), with some reference to public sector financial reporting standards where these are relevant and helpful. The project has thrown up some thorny accounting challenges. Non-profits, which are largely reliant on grants and donations for their revenue, are not like businesses where revenue is received in return for the sale of a good or service, with both parties receiving something from the transaction.

It opens up all sorts of questions that aren’t addressed in other accounting standards

Sam Musoke, Project Director of IFR4NPO

In non-profits, key transactions can be one-way. The donor gives money on the understanding it is used for someone else’s benefit. “That changes the whole accounting and opens up all sorts of questions that aren’t addressed in other accounting standards,” Sam says.

A further complication comes from the fact that many grants come with limitations on how they can be used. “Again, that does not happen in businesses,” Sam points out.

“If I buy a bottle of water from you, I’m not going to tell you how to use that money. It’s your money to use as you wish. The idea of donor-imposed restrictions is very unique to the sector and has a big impact on accounting and accountability. Because I don’t just have to say what have I got and what have I spent, I’ve got to be able to show that I spent it on the thing that it was understood it would spent on. Now that’s another level of complexity in terms of accountability.”

A range of different solutions and approaches have been developed to solve this accountability conundrum. The proposed guidance being developed seeks to harmonise those approaches and develop a common language all parties can understand and that builds credibility and trust.

Embracing the change

Responses to the project’s work have been encouragingly diverse, say Sam and Karen, with input from all global regions and continents as well as a wide spread of stakeholder groups, all informed by a high degree of passion and engagement.

From a low-key start, the project has now built a reputation and respect in the non-profit sector and both Sam and Karen agree there has been a real shift in perception.

“We are a rolling stone,” says Karen. “We started with nothing and we’ve grown a lot.”

She reflects that the project directors tend to look forward at the mountain in front of them “but actually, when we look back, you can see just how far we’ve travelled.”

More information on the IFR4NPO and International Non-Profit Accounting Guidance can be found at https://www.ifr4npo.org/.

Vivienne Russell is a freelance writer and editor with a particular interest in public finance and public services. Until June 2023 she was Head of Communications, Content and Events at CIPFA, the only professional accountancy body in the world with a focus on the public sector. Before that she was editor of the award-winning Public Finance magazine and has written extensively about public financial management in the UK and internationally.