Unlike in the private and public sectors where the International Financial Reporting Standards (IFRSs) and the International Public Sector Accounting Standards (IPSAS) can be adopted or adapted to meet the needs of both sectors respectively, Non-profit organisations (NPOs) to date, do not have a specific guidance on how to prepare their financial statements.

This gap has always been fixed by some funding organisations who try to develop their own reporting requirements, however, the apparent differences in reporting requirements have continued to be burdensome for the same organisations they purport to help.

Other few countries’ guidance can only address their own issues at national level.

With lack of a guidance, NPOs are currently characterised by several challenges including lack of transparency – due to unclear reports, inflated costs from both ends: funders and grantees emanating from a need to prepare different reports for different stakeholders, inconsistent financial reports, double funding fraud, among others.

Further evidence comes from a 2014 survey, in which 72 per cent of respondents from 179 countries agreed that it would be useful to have a guidance that will apply to the unique sector-specific aspects of the annual general purpose financial reports as opposed to preparing financial reports based on private sector standards or public sector standards or a mixture of both under certain situations.

This, therefore, reinforces the urgency with which a common international standard "guidance” should be developed.

With a developed guidance, however, this shall be history come early 2025. The International Financial Reporting for Non-Profit Organisations (IFR4NPO) – an initiative to develop the world’s first internationally applicable Financial Reporting guidance for Non-Profit Organisations – is keen on unveiling the final guidance by then.

Once ready and adopted, the guidance shall offer numerous benefits particularly improved usefulness, transparency, and consistency of NPO financial reports.

Producing such a guidance that is relevant in different contexts and useful for a variety of readers requires a road map which includes a consultation, exposure raft, final guidance, and training and transition methodology, following adoption.

 Currently the process is heading towards an exposure draft – whose draft is expected around November-2022, which will be the second phase of the project after incorporating feedback from the consultation paper to which the project is currently soliciting.

The key rationale to contributing to the consultation paper is to enhance the reach out to all stakeholders such that the cultural context is well reflected whilst providing an opportunity to everyone to shape the future since each stakeholder’s voice and perspectives are fundamental in the development process.

Besides, it is expected that it would be easier for an individual or an organisation to adopt or adapt to a guidance to which they contributed to develop.

IFR4NPO has already conducted collaborative virtual awareness meetings globally, and in Rwanda, the first one was conducted in September 2020, which was a free event open to all individuals or organisations that had an interest or stake in financial reporting for non-profit organisations (NPO) in Rwanda and internationally, aiming at: learning more about IFR4NPO,  discussing key questions and issues relevant to NPO financial reporting in Rwanda, meeting key relevant stakeholders, discovering how to participate in the consultation process in 2021 to ensure that the voices and perspectives of stakeholders in Rwanda were reflected in the development process.

Participants of the virtual meeting resonated on the Guidance benefits to Rwanda by stressing that it would be very helpful to have a harmonized reporting framework that both donors and the government recognize, improved comparability and support in fundraising would be realized, and there would be enhanced accountability. It was similarly highlighted that for Project success, some of the most important stakeholders that would need to be engaged include Rwanda Civil Society Platform (RCSP); Rwanda Governance Board (RGB); and the Rwanda Revenue Authority (RRA).

The challenges mentioned around the project implementation by the participants include, but not limited to lack of capacity for smaller or local NGOs to implement the Guidance as this will entail some financial implications, and the perceived resistance to change.

It is hoped that Rwanda will adopt this Guidance and not just as a quality tool where a country may announce adoption of an international standard and it ends there; without ensuring that NPOs within the country actually implement as per the required standards. Engaging stakeholders therefore mitigates this risk by ensuring that all the potential stakeholders contribute to all the Guidance phases, thereby enhancing adoption inspiration and willingness – since it costs actually nothing for a country to claim to have either adopted or adapt the Guidance, once launched.

In the private sector, the General-Purpose Financial Reports are aimed at meeting the needs of investors.

In the public sector, General Purpose Financial Reports are aimed at meeting the needs of citizens and the government, while for the non-profit sector, the General-Purpose Financial Reports should meet the needs of all the relevant stakeholders including delivering of services for the public benefit.

It is believed that the guidance will contribute to a more resilient and accountable sector that is better able to attract, generate and utilize funds to achieve positive social good.

The author is the Director, Professional Development Services – ICPAR