The global economic downturn has meant that improved reporting transparency is a key focus for not-for-profits writes Kerry Hicks.
Amid changes to both Australian and international reporting standards, the Institute of Chartered Accountants in Australia (the Institute) has published an updated edition of its 2007 thought leadership publication, Enhancing not-for-profit annual and financial reporting.
The new edition is designed to assist not-for-profit (NFP) entities in their efforts to attain best practice in their annual and financial reports.
The paper is a practical ‘how to’ guide for those who prepare financial and annual reports for a not-for-profit entity. The paper contains a checklist for the annual report and an illustrative financial report, providing the preparers of the reports a practical reference tool to refer to when compiling their end of year reports for both 2009 and 2010.
The paper acknowledges the effects the economic downturn is having across all business sectors. The economic uncertainty has meant that many NFPs face increased costs and challenges in maintaining income levels and achieving their goals. The full impact on funding levels for NFPs remains largely unknown. However, the factors surrounding the global economic downturn need to be carefully explored when providing stakeholders with explanations surrounding movements in key indicators on the performance of the organisation.
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The Institute believes that to successfully operate through the current climate, NFPs will need to have:
Re-considered their objectives and strategies;
Transparently communicated changes in objectives and strategies, using their annual and financial reporting processes where appropriate;
Implemented good management practices; and
Secured strong cash resources.
The launch of the updated not-for-profit paper is aligned with the PricewaterhouseCoopers (PwC) Transparency Awards, designed to recognise the quality and transparency of reporting in the not-for-profit sector, which the Institute strongly supports.
Some of the changes made to the second edition of Enhancing not-for-profit annual and financial reporting stem from the recommendations arising from the 2007 PwC Transparency Awards. The 2008/09 Transparency Awards will be announced in Sydney on Thursday 23 April 2009.
Kerry Hicks is Head of Reporting at the Institute of Chartered Accountants in Australia. The Institute's Enhancing not-for-profit annual and financial reporting paper can be viewed at www.charteredaccountants.com.au/leadership/reporting
5 key areas for financial and strategic leadership in the current economic environment 1. Understand key risks and impacts
Understand how the organisation is impacted by the downturn. Evaluate activities in relation to the organisation’s goals and objectives (have activities been added during the good times that are not aligned with the NFP’s goals and objectives, for example, can planned activities be deferred?). Plan for different scenarios reflecting the impact of the downturn and determine actions early.
2. Cash flow management
Ensure the organisation’s working capital is healthy. For example, if the NFP has a policy to hold cash reserves equal to a number of weeks’ operating costs, will that be enough in light of reduced fundraising? Re-examine funding or financing exposures. Assess growing concern and protect liquidity.
3. Reliable measurement of performance
Monitor performance against clearly defined financial and non-financial key performance indicators and report performance to staff, volunteers and external stakeholders.
4. Manage costs
Maintain the efficiency and effectiveness of activities and programs by focusing on enhancing performance, improving outcomes and reducing complexity.
5. Value resources
Clear communication with employees, volunteers and stakeholders.
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