IDENTIFYING USERS OF EXTERNAL FINANCIAL INFORMATION OF PRIVATE SECTOR NOT FOR PROFIT ENTITIES: PERSPECTIVES FROM PREPARERS AND USERS

Lydia Kilcullen
University of Western Australia
Australia

Phil Hancock
University of Western Australia
Australia

H.Y. Izan
University of Western Australia
Australia

Abstract:
The purpose of this research is to examine who uses the external financial reports of private sector Not For Profit (NFP) entities by comparing the views of preparers of external financial reports of Member and Community serving NFP entities with those of donors and members.
Australia adopted the International Financial Reporting Standards (IFRS) produced by the International Accounting Standards Board (IASB), from 1 January 2005. The Australian Accounting Standards Board (AASB) provides guidance that identifies users of external financial reports within its conceptual framework. The IASB, together with the Financial Accounting Standards Board (FASB) have commenced deliberations on an improved conceptual framework and within these discussions have acknowledged that the focus is on private sector business entities and that the boards are yet to consider whether the concepts apply to NFP entities.
The current AASB and proposed IASB conceptual frameworks have identified the users of external financial reports. This paper investigates the extent to which preparers and users agree with the users identified in these frameworks.
A survey was sent to preparers, of both member and community serving NFP entities as well as donors and members, to examine their views as to who relies on the external financial reports of private sector NFP entities. Comparisons of the preparer and user groups indicate very high levels of agreement in their views.
When compared with the current AASB conceptual framework and the proposed IASB/FASB conceptual framework, a number of significant differences are found. Preparers and users consider (among others) auditors, related bodies, other like entities, management and governing bodies to rely on external financial reports. However, the current and proposed conceptual frameworks do not consider these groups to be users of external financial reports. Furthermore, one of the primary user groups identified within the proposed IASB/FASB conceptual framework, equity investors, is not appropriate for private sector NFP entities as they do not have investors.