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

Abstract

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.

Auditors’ propensity and accuracy in issuing going‐concern modified audit opinions for charities

“…Regarding factors which mitigate the circumstances that suggest a GCO, size and the age of the charity are controlled for, because smaller entities are more likely to have greater levels of financial distress. Age is included on the basis that charities that have operated for a longer time are more likely to continue to operate in the future (Simnett, 1987; Yang and Simnett, 2020), and as a measure of reputation capital (Yetman and Yetman, 2012). Two ratios specific to charities, the grant income ratio and the donation income ratio, are included to represent operational structure, following Tate (2007).…”

“…In addition, charities financial statements are commonly less complex than those of for-profit corporations. For example, in Australia, a considerable number of charities choose to prepare special purpose financial reports or apply Tier 2 Accounting Standards in preparing general purpose financial reports, which substantially reduces disclosures compared to for-profit entities that have public accountability and must apply Tier 1 Accounting Standards (Yang and Simnett, 2020). From the perspective of suppliers, with greater reputation capital to maintain (DeAngelo, 1981), Big 4 audit firms might be less likely to engage with charities with higher audit risk.…”

Construction of financial data management and analysis system based on big data

“…Big data technology stores financial data in a virtual and digital way, these data need to be displayed to managers at all levels of the enterprise in a suitable way, only in this way can the value of financial data be reflected [3][4]. In fact, big data covers two functional modules of back-end data storage and front-end data display.…”

Financial Disclosure Management by Charitable Organisations: A Conceptual and Operational Framework

“…Similarly, the presentation of the information, for example, current costs/revenues vs exceptional costs/revenues, can also be managed to influence stakeholders’ perceptions of a charity's performance. Finally, in Australia, the choice between the General Purpose Financial Statements (GPFS) and the Special Purpose Financial Statements (SPFS) reporting frameworks (Saj and Cheong 2020; Yang and Simnett 2020) also falls under financial disclosure management.…”