Financial Reporting in European NPOs: Is Now the Time for a Common Framework?

The role of the nonprofit sector in the European Community is widely recognized by the Commission and European Parliament, which look to these organizations to promote the development and integration of EU citizens in activities relevant to the societies of member states. Recognizing the importance of these enterprises, European central bodies seek to promote growth through funding programs for training and professionalization and through communications that define the roles and the operations of these entities. This social economy or Third Sector is very heterogeneous, not only in the types of organizations and operations, but also in the types of relationships with civil society and especially in reporting and accounting practices (Jerger and Lapsley, 1998). The European Commission and Parliament have largely avoided issuing specific rules for financial reporting applicable to all players in the social economy. (Not-for-profit enterprises engaged in business, mainly cooperatives and social cooperatives, are covered in an indirect way by the Community directive in accounting.) A large area of doubt results, particularly concerning associations and foundations, which makes it difficult to gauge the results of these actors' contributions to the social economy. The gray area, paradoxically, covers just those types of entities that have become more pervasive within civil society and that are especially well positioned to promote integration among EU citizens. The enlargement of the Community to twenty-five nations, connected with the free movement of people and activities, raises to extraordinary importance the need for a framework for nonprofits to report accounting information and a model annual budget that are common to all European states. Developing a common framework requires an analysis of national accounting models, including the role of cultural factors (Doupnika and Riccio 2006). It is therefore vital to develop cultural and legislative analyses for those countries that have imposed accounting requirements on players in the Third Sector. Through these analyses, we may derive a path for the creation of a single accounting model. This article seeks to highlight possible areas of overlap in accounting models, through an analysis of accounting regulations applicable to not-for-profit organizations in the United Kingdom, Spain, and Italy.