The activity and influence of nonprofit organizations has grown exponentially in recent years. Associated financial framework requirements facilitate standardization and transparency of information regarding organizations’ financial affairs and provide a means to foster greater stakeholder trust. However, global nonprofit reporting financial framework requirements vary dramatically, from mandatory detailed reporting to recommended practices to completely voluntary.
A detailed nonprofit financial reporting framework, Charities Statement of Recommended Practice (Charities SORP), has been promulgated for both the UK and Ireland. While adoption is mandatory in the UK, the Irish nonprofit sector currently operates under a voluntary financial reporting system. This unique setting provides a means to assess the use and benefits of a formal, government recommended reporting practice, where adoption will soon be made mandatory.
Our study published in the European Accounting Review (Dwyer, Harris & Murphy, 2024), analyzes an industry diverse sample of 23,124 nonprofit year observations for 6,593 unique Irish nonprofit organizations. It examines determinants and funding consequences of voluntarily using Charities SORP in advance of mandatory adoption.
We show that there has been a steady increase in the adoption of Charities SORP, with use more than doubling between 2015-2020. We also show that Irish nonprofit organizations with more external oversight from regulators, auditors and funders as well as those with more resources are more likely to adopt Charities SORP. In addition, we observe that organizations are more likely to adopt Charities SORP when peer organizations in the same industry/county have already adopted SORP.
With regard to funding consequences, our findings highlight that Irish nonprofit organizations following Charities SORP receive more future funding support from both donors and government grantors. We also observe that donors reward smaller and educational organizations voluntarily adopting Charities SORP than larger, non-educational organizations. In addition, we find that more efficient organizations and those that spend more on advertising their mission are rewarded with higher future donation support.
Our findings provide important insights for nonprofit regulators in jurisdictions that have yet to establish financial reporting requirements and for those that have recommended practices. Mindful of several recent high-profile charity scandals, we support calls to encourage nonprofit organizations to adopt the expanded reporting framework provided by Charities SORP as a means to rebuild stakeholder trust.
Article available here:
Dwyer, KAM., Harris, E. & Murphy, B. (2024) Voluntary Adoption of Recommended Reporting Practices: Evidence from the Irish Nonprofit Sector, European Accounting Review, DOI: 10.1080/09638180.2024.2384376
