Financial Reporting by Charities: Why Do Some Choose to Report Under a More Extensive Reporting Framework?

While voluntary disclosure theory posits that profit-oriented companies voluntarily disclose information to increase their market value, this does not explain why a charity would report in accordance with a more comprehensive financial reporting framework than required. Using a unique financial reporting framework choice available in Australia, our study examines factors associated with large charities’ choice of a General Purpose Financial Statements (GPFS) reporting framework, which encompasses expansive financial reporting requirements, versus a Special Purpose Financial Statements (SPFS) reporting framework, where management, within limits, effectively chooses that subset of accounting standards applicable to that charity. For those preparing GPFS, we then examine the factors that determine those charities that report in accordance with the complete set of Australian Accounting Standards (Tier 1) versus Reduced Disclosure Requirements (Tier 2). Using manually collected data from 11,471 large-registered charities for 2014–2016, we find that the economic importance of the charity, its funding sources, and level of indebtedness are significant in explaining charities choosing a more comprehensive financial reporting framework. Further, we find a substantial increase in the proportion of large charities electing to disclose GPFS-Tier 2 over this three-year window. The choice of a large audit firm (Big 4 and mid-tier audit firms) is significantly associated with charities both lodging more comprehensive GPFS, and also reporting GPFS in accordance with the less onerous GPFS-Tier 2 framework. Our results provide insights into voluntary reporting choices made by charities and inform charities, accounting firms, and regulators of factors influencing charities’ choice of financial reporting frameworks.     

The Evolution of Consolidated Financial Reporting in Australia

This paper reviews the history of financial reporting by corporate groups in Australia, and in particular, the States of New South Wales and Victoria. Changes in Statutory and Stock Exchange rules governing consolidated reporting are described and the financial reporting practices of Australian holding companies between 1930 and 1962 are surveyed. The evidence indicates that (a) while the practice was not widespread, some Australian holding companies supplemented their financial statements with consolidated financial statements prior to the incorporation of such a requirement in either legislation or Stock Exchange listing requirements; (b) the influence of Stock Exchanges on the evolution of this practice is somewhat less than that previously attributed to it; and (c) the rapid spread of this form of reporting in an essentially unregulated environment (N.S. W.) coincided with the development of a market for public debt securities.     

`Sector Neutrality' and NPM'Incentives': Their Use in Eroding the Public Sector

Despite New Zealans public-sector reformers' claims that financial reporting changes promote competitive neutrality and improved accountability and transparency, privatisation-favouring "incentives" were designed into the system at a hidden detailed level. That distorted system has been encompassed within the accounting profession's standard-setting activities through standard-setters' erroneous claims, in Australia and New Zealand, that the accounting profession's conceptual framework and accounting standards are sector-neutral. These claims help to conceal the fact that the public-sector financial management system has been designed to be partial, with its incentives structured to erode the public sector and favour privatisation.     

'Sector Neutrality' and NPM 'Incentives': Their Use in Eroding the Public Sector

Despite New Zealans public-sector reformers' claims that financial reporting changes promote competitive neutrality and improved accountability and transparency, privatisation-favouring "incentives" were designed into the system at a hidden detailed level. That distorted system has been encompassed within the accounting profession's standard-setting activities through standard-setters' erroneous claims, in Australia and New Zealand, that the accounting profession's conceptual framework and accounting standards are sector-neutral. These claims help to conceal the fact that the public-sector financial management system has been designed to be partial, with its incentives structured to erode the public sector and favour privatisation.     

Financial reporting by charities: a matched case study analysis from four countries

This paper analyses financial reporting requirements applicable to charities in four jurisdictions—Australia; England; Ireland; New Zealand—using case study analysis which compares the actual financial statements of four charities operating in the same field and with similar levels of total income. The authors highlight common issues and implications in terms of the concepts underpinning not-for-profit organization (NPO) financial reporting and argue the case for harmonized international NPO accounting standards.     

Is Australia Moving Too Far Ahead of The United States in the Convergence to International Accounting Standards?

To understand Australia's position in financial reporting, it is necessary to examine the global environment in which the financial reporting of all countries is evolving. This article describes that global environment and Australia's policy and progress before answering the question of whether Australia is moving too far ahead of the United States in the convergence to international accounting standards (MS).     

Application of the Reporting Entity Concept in Australia

For decades, the reporting entity concept has been the foundation of differential reporting in Australia. Those entities classified as ‘reporting entities’ are, prima facie, required to produce full GAAP‐based financial reports while other (non‐reporting) entities are generally able to produce less complex and shorter ‘special purpose’ financial reports. In recent years, the application of the concept, as originally set out in the Statement of Accounting Concepts (SAC) 1 Definition of the Reporting Entity, has been criticized on several grounds—particularly, that it does not yield the reporting outcomes originally intended by regulators. Our analysis of 1,546 companies lodging financial statements with the corporate regulator in Australia (ASIC) shows the principles‐based criteria in SAC 1, designed to indicate the existence of a reporting entity, do not systematically explain its application by entities. Our findings are relevant for policy makers, researchers, and regulators concerned with how these choices might be more effectively regulated in future and whether this is best done through principles‐based or rules‐based approaches.     

FINANCIAL REPORTING IN THE PUBLIC SECTOR AND THE DEMAND FOR INFORMATION

The public good nature of information in the public sector means that the concept of direct'user need'as a basis for the development of a conceptual framework for financial reporting needs to be extended to the more general concept of'individual informational benefits'. Lack of individual demand for financial reporting information does not imply zero potential individual benefit from the use of such information. The achievement of a social optimum in the use of information is likely to require both a well-grounded conceptual framework for financial reporting and independent monitoring bodies able to make effective use of the information.     

建立中国财务会计概念框架的总体设想

本文围绕在我国建立财务会计概念框架的基本问题,系统探讨了财务会计目标、财务报告信息的质量特征、财务报表的要素、要素的确认与计量、财务报告的列报等问题。本文在借鉴国外既有研究成果的基础上着重探讨了资产要素的定义,结合收入要素探讨了确认问题,在财务报告列报部分还具体探讨了财务报表确认、财务报表附注及其它财务报告的披露问题。     

21st century scandals: towards a risk approach to financial reporting scandals

Financial reporting scandals in the 21^st century have been followed by many changes in the regulatory framework of financial reporting. While it is natural to ask for research evidence on the effectiveness of these changes in preventing new scandals, we discuss some of the difficulties in conducting this type of research as well as limitations of commonly used approaches. We argue as the central point of this paper that both research and regulation should be based on an explicit acceptance of a permanent risk of financial reporting failure, rather than working on the assumption that this risk can and should be ever further reduced. Acceptance of this point of view can turn what is currently a scattering of unconnected research efforts into a coherent research agenda with potentially high relevance. Facing the existence of permanent financial reporting risk leads to a series of interconnected questions including the measurement of this risk, both actual and as perceived by various stakeholder groups, communication and education concerning these risks, and mechanisms to share or transfer these risks.     

Do Not‐For‐Profits Need Their Own Conceptual Framework?

This paper raises the issue of whether not‐for‐profit (NFP) oganisations require a conceptual framework that acknowledges their mission imperative and enables them to discharge their broader accountability. Relying on publicly available documentation and literature, it suggests the current Conceptual Frameworks for the for‐profit and public sectors are inadequate in meeting the accountability needs of NFPs. A NFP‐specific conceptual framework would allow the demonstration of broader NFP‐specific accountability and the formulation of NFP‐appropriate reporting practice, including the provision of financial and non‐financial reporting. The paper thus theoretically challenges existing financial reporting arrangements and invites debate on their future direction.     

The Credibility Of Australian Financial Reporting: Are The Co-regulation Arrangements Working?

Credible financial reporting is hard to achieve without an accounting regulatory system. In Australia a system of co-regulation has evolved, based on collaboration between the federal government and its agencies and the accounting profession. Compared with overseas systems, the Australian approach to regulation has unique as well as derivative features. Is the system working effectively for the delivery of dependable, internationally comparable financial reports that make reporting entities transparent and enhance investor confidence?     

The Financial Value Of Cultural, Heritage And Scientific Collections: An Accounting Fiction

That museum and like collections have cultural, heritage, scientific and educational values is widely appreciated. However, accounting standard setters in Australia and New Zealand have recently advocated that public arts institutions bring their collections to account as assets for financial reporting purposes. There are no similar requirements in the US, European Union (including the UK) and Canada; nor has the International Accounting Standards Board made such a recommendation. From surveys of current accounting practices, it is apparent that, by and large, arts institutions in the English-speaking world do not report their collections for financial reporting purposes. This paper demonstrates that it is not technically proper to recognise cultural, heritage and scientific collections as assets for financial reporting purposes.     

SME Reporting in Australia: Where to Now for Decision‐usefulness?

This paper develops recommendations for simplified decision‐useful SME financial reporting in Australia – a country that has traditionally allowed a wide range of reporting standards to be used by these entities. Drawing on interviews and comment letters from a number of stakeholders, and data from a survey of users of financial statements of non‐publicly accountable unlisted entities, we analyse stakeholder arguments for and against SMEs providing less detailed reports, and identify the line items that might be most useful to users for decision making.     

CFO Fiduciary Responsibilities and Annual Bonus Incentives

We examine how firms design bonus plans of their CFOs. CFOs participate in decision making much like other executives, but they also have significant fiduciary responsibilities for reporting firms' financial results. Responsibility for financial reporting raises the question of whether it is appropriate to pay CFOs annual bonuses contingent on self-reported financial performance. In this paper, we provide a framework that characterizes CFO bonuses as a tradeoff between CFOs' decision-making responsibilities and their fiduciary duties over financial reporting. This framework yields a number of implications that we examine empirically using a proprietary survey of CFO compensation practices of public and private firms. Our main finding shows that from 2003 to 2007 public entities (relative to private entities) reduced the percentage of CFO bonuses contingent on financial performance. We interpret this result as evidence that firms mitigate misreporting practices in part by deemphasizing CFO incentive compensation.     

Practical Problems In The Reporting Entity Concept

The concept of a reporting entity has been introduced into financial reporting in Australia through a number of statements and standards. These documents require reporting entities to prepare so-called general-purpose financial reports which comply with all statements of accounting concepts and accounting standards, whereas non-reporting entities are not bound to the same level of compliance. Unfortunately, little authoritative guidance on interpretation and application of the reporting entity concept has come from either the Australian Accounting Standards Board or the Auditing Standards Board, despite the fact that the reporting entity concept has applied since 30 June 1992. The solutions proposed here may be temporary, given that the Corporations Law could be amended. It would be in readers' interests to consider any further authoritative guidance which might become available.     

Application of Accrual Accounting in the Australian Public Sector – Rhetoric or Reality

This paper presents a contextual. historical analysis of recent accrual accounting developments in the Australian Public Sector (APS). It takes a critical stance in that it questions the accrual accounting developments on a number of grounds. The paper examines changes in public sector financial management and accountability in four distinct settings, being: accrual financial reporting, accrual management systems, whole of government reporting, and accrual based budgeting. The findings show that already in Australia accrual accounting has made significant encroachments into some areas of annual financial and budget reporting. This influx has meant that terms such as 'deficit', 'debt', 'liabilities', 'operating results', 'assets', etc. have begun to change in meaning, which it is argued has important implications for the current process of transformation of aspects of the APS.     

CAPITAL ACCOUNTING, USER NEEDS AND THE FOUNDATIONS OF A CONCEPTUAL FRAMEWORK FOR PUBLIC SECTOR FINANCIAL REPORTING

This paper analyses the need for an adequate conceptual framework for financial reporting, particularly in the public sector, and examines several factors which may have worked against progress in the UK in developing such a conceptual framework in the past. The paper then analyses in detail the needs of potential users for capital accounting information in public sector financial reports, and the relevance of accruals accounting and different measurement bases in this context. Given the large amount of existing work outside the UK on the development of conceptual frameworks for financial reporting, the paper argues the need not for a new framework, but rather for a more focused analysis of several key conceptual issues that are relevant to meeting user needs.     

Toward a conceptual framework of the harmonization of bank financial reporting standards in transition economies: The case of Mexico

In recent years banks in emerging and transition economies throughout the world have been compelled to change lending and financial reporting practices in response to the economic transition of their countries. Correspondingly, on the basis of the theory of soft budget constraints (SBC), economists have studied the relationship between economic development, banks' lending practices, and banks' penchant to overstate loans. However, very little research has been performed by accounting researchers regarding the nature of bank loan overstatement during times of financial crisis in emerging markets. Accordingly, this paper uses the theory of soft budget constraints to develop a four stage conceptual framework of the harmonization of bank financial reporting standards during times of economic transition. Emphasis is placed on using the theory of soft budget constraints to characterize the harmonization of standards and practices with respect to bank loan overstatement. The framework is applied to the harmonization of Mexican bank financial reporting during the country's economic transition of the late 1990s. The Mexican harmonization process during this period generally followed the framework.     

The Effect Of The Longform Audit Report On Users‘ Perceptions Of The Auditor's Role

This study examined the effect of the new longform auditor's report on users' perceptions of the auditor's role in financial reporting in Australia. One hundred and eighty financial report users took part in the study, including 60 senior bank lending officers, 60 investors and 60 non-investors with business backgrounds. The results of the study indicated that the changed wording of the longform audit report advocated in the revised Statement of Auditing Practice AUP 3 The Audit Report on a General Purpose Financial Report, issued in July 1993, significantly increased users' understanding of the role of the auditor, the nature of the audit process and the financial reporting process.