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

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  • Yitang (Jenny) Yang
  • Roger Simnett

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.

Suggested Citation

  • Yitang (Jenny) Yang & Roger Simnett, 2020. "Financial Reporting by Charities: Why Do Some Choose to Report Under a More Extensive Reporting Framework?," Abacus, Accounting Foundation, University of Sydney, vol. 56(3), pages 320-347, September.
    • Handle: RePEc:bla:abacus:v:56:y:2020:i:3:p:320-347
    DOI: 10.1111/abac.12202
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    References listed on IDEAS

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    3. David J. Gilchrist & Roger Simnett, 2019. "Research horizons for public and private not‐for‐profit sector reporting: moving the bar in the right direction," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(1), pages 59-85, March.
    4. Michael Davern & Nikole Gyles & Dean Hanlon & Matthew Pinnuck, 2019. "Is Financial Reporting Still Useful? Australian Evidence," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 237-272, March.
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    6. Brad Potter & Matthew Pinnuck & George Tanewski & Sue Wright, 2019. "Keeping it private: financial reporting by large proprietary companies in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(1), pages 87-113, March.
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    Cited by:

    1. Yitang (Jenny) Yang & Roger Simnett & Elizabeth Carson, 2022. "Auditors’ propensity and accuracy in issuing going‐concern modified audit opinions for charities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1273-1306, April.
    2. Elizabeth Carson & Yi (Dale) Fu & Ulrike Thürheimer & Yang Xu, 2023. "The audit market for listed Australian companies from 2012 to 2018: A state of play," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 524-549, August.
    3. Dominic Cyr & Suzanne Landry & Anne Fortin, 2023. "Financial Disclosure Management by Charitable Organisations: A Conceptual and Operational Framework," Australian Accounting Review, CPA Australia, vol. 33(1), pages 46-65, March.

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