Change is imminent to Financial Reporting in the Nonprofit Sector

Earlier this week we were delighted to have presented at an information event organised by Chartered Accountants Ireland. The audience consisted of charity finance directors, auditors and trustees who had all gathered to learn more about trends and developments in the nonprofit sector.

Our Finance Director Paula Nyland shared some insights on financial reporting by Irish charities, based on Benefacts’ review of all of the publicly available financial statements of nonprofits in our scope – at the last count, 7,921 organisations, of which 4,722 are registered charities. Paula noted that 91% of those charities whose accounts are publicly available have still not elected to use the voluntary financial reporting standard for charities (the Statement of Recommended Practice, or Charities SORP).

Most of the charities that have chosen to use this reporting standard are fundraising in an environment where funders’ expectations drive higher reporting standards: international development aid – where many of the institutional donors are international governmental bodies – health, and social care.

Analysis by subset of Irish charities that report using Charities SORP

We’ve pulled together a breakdown of Charities SORP reporters based on their 2014 financial statements (2015 data will be available early next year).

3-fold increase in the number of nonprofits filing abridged accounts

Paula also took the audience through the dramatic increase in the number of nonprofits that have chosen to avail of the exemption from filing full financial accounts with the Companies Registration Office: under the 2014 Companies Act, this is available for the first time to smaller (<€8.8m turnover, €4.4m assets, <50 staff) nonprofit companies.

In effect, this means that very little financial information is publicly available about these entities. “Abridged” accounts give the reader only limited information about the financial profile of an organisation: namely, the names of the directors, the audit opinion, the balance sheet and a small number of other statutory disclosures. Compared to 2014, when only 7.5% of non-profit companies filed abridged accounts, the percentage of nonprofits taking advantage of the change in the law has jumped almost threefold to 21% in the case of 2015 accounts filed to date.

New financial reporting standards imminent

Section 47 of the Charities Act, 2009 provides for the setting of specific standards for financial reporting by charities. The Charities Regulator John Farrelly, speaking at the same event, said he was on the point of publishing new draft regulations, and would be touring Ireland for a round of consultation on these during October. These regulations will set a new mandatory reporting standard, albeit for unincorporated charities only, since under the Charities Act Section 47 (11), these regulations will not apply to charitable organisations that are incorporated as companies.

According to our database, 70% of registered charities are incorporated under the Companies Act. This means that the new regulations will apply to only 30% of currently-registered charities although of course this number is likely to grow as more charities complete the process of registration.

Here’s our analysis: the column on the right indicates the scale of charities that will be initially affected by the new regulations.

To explore our database further, click here.