“Start Again” – CCA submission about Accounting Standards

The External Reporting Board had asked for another round of submissions about their proposed accounting standards for small and medium not-for-profits, which closed earlier this month.

CCA submitted that the current proposals should not be implemented, as they are based on accounting concepts suitable for businesses but not not-for-profits. They do not take into account the fundamental differences between the two and are likely to significantly raise compliance costs without any gains in meaningful accountability. We also fail to see that the not-for-profit sector has been very involved in the conceptualising and design, and believe that XRB is not a suitable agency to standardise¬† reporting about non-financial indicators . CCA’s key concerns about the proposals are:

– even micro-entities with only a handful of transactions per year and a few hundred dollars in the bank will have to produce financial reports that span over several pages. A minimum threshold is needed.

– the longer and more technical financial reports are, the less likely non-accountants are to understand or even read them. Donors, board members, members and other stakeholders to which not-for-profts are accountable are not usally proficient in accounting, and accountability is therefore reduced.

– introducing items such as dollar values for output or outcomes as part of financial statements increases audit burden as auditors will have to make sure these numbers are not misleading. This will drive up audit costs without significant benefits.

– the proposed service performance report is meaningless for the large number of not-for-profts that are entirely member-based, do not engage in delivering a service to people outside the organisation, have no intention to grow or ‘improve’, and have no “mission” or long-term objectives other than being a platform for people with common interests.

– the combination of financial data with ‘guesstimates’ such as outputs and outcomes may encourage readers to create unsuitable “bums-on-seats” ratios and pitch not-for-profits against each other.

The full submission is here: Submission – XRB Standards

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