The accounting world is about to get a new international standard. This time, after years of attention for the private sector, the limelight will shift to non-profits and a standard to more accurately reflect and compare their work wherever it is across the world.
The International Non-Profit Accounting Standard (INPAS) is scheduled for release in September following a decade of debate and development. It aims at nothing short of simplifying the current non-profit landscape where up to a dozen different systems are in use around the world, and where individual donors, whether international bodies or foundations, impose their own reporting requirements on grant funding.
Samantha Musoke, director of INPAS adoption with Humentum, the NGO driving the new standard’s genesis, says of the current reporting landscape: ‘It’s massively inefficient, very burdensome and wasteful, and it doesn’t really help meet needs either.’
It’s that waste and inefficiency INPAS is designed to address. Humentum has declarations of ‘support’ from donors as august as the Gates Foundation, the Ford Foundation, the African Development Bank, the World Bank and, up until a major reversal in White House policy, USAID.
‘The over-arching problem is a financial trust and credibility gap’
There are also 15,000 subscribers to the INPAS newsletter – non-profit accountants, grant officers, government officials, policymakers and regulators around the world – eager to see a reform of the current system.
International standards for non-profits have been in the pipeline since 2014 when a review was commissioned by the Consultative Committee of Accountancy Bodies (CCAB). That was followed in 2015 by an ACCA report showing how non-profits might use standards for SMEs.
Jumble of standards
Between then and now, what most non-profits have learned to cope with is either a local standard or a version of IFRS for SMEs – a good place to start given they’re aimed at smaller entities, but hardly fitting for non-profits dealing with endowments, grants and donations from individuals, charitable bodies and international organisations.
As well intentioned as all past efforts have been, the resulting landscape remains a mish-mash of standards that has left a sector struggling to establish consistency in its reporting.
To fill the gap, donors make their own reporting demands, which confuses the picture
‘The over-arching problem,’ says Musoke, ‘is a kind of trust gap – a financial trust and financial credibility gap’.
To fill the gap, donors make their own reporting demands, tied to individual grants – a factor that ultimately confuses the reporting picture for non-profits.
‘These grant reports are free-floating bits of information that aren’t tethered to the main entity accounts,’ says Musoke, ‘so the risk of error and fraud are high, and trust is low. We have a lot of effort, a lot of inconsistency and low trust.’
Push for transparency
INPAS sets about tying grants to the accounts and building credibility. Another of its aims is providing transparency over ‘restricted’ and ‘unrestricted’ funds – or to put it another way, money that is donated for specific purposes and that which is not.
This is important. The non-profit sector is increasingly pushing for donors to grant ‘unrestricted’ funds. That would give NGOs greater flexibility to allocate money where they consider it most needed themselves without reference to donors. The issue has prompted much debate, but the key block has been the lack of transparency provided by the existing accountancy frameworks.
INPAS has support but is yet to win a first adoption from regulators
INPAS tackles the use of unrestricted funds in a way IFRS for SMEs simply cannot. ‘We hope it can streamline and make reporting for unrestricted grants easier, help unlock more unrestricted funding from funders, and improve the quality of funding so that local organisations can be more sustainable and agile,’ says Musoke.
Adoption timeline
One big question is how quickly the new standards will be adopted. INPAS has support but is yet to win a first adoption from regulators worldwide. That is more likely to happen once they are published, though Australian regulators have already used them in ‘guidance’.
Humentum is also in talks with countries about early adoption. The body is hopeful that jurisdictions with high levels of non-profit activity and no existing accounting frameworks of their own will come on board first. Other countries with established frameworks of non-profit accounting might also choose INPAS, but review processes mean this could take a while.
